Home Insurance: Protection And Peace Of Mind

Home insurance is financial protection that you can purchase to help cover costs if your home is damaged or destroyed by a covered event. The insurance policy is a contract where the homeowner and insurance company agree that in exchange for a premium payment, the insurance company will provide compensation for the repairs or replacement of the home if it is damaged from a covered peril.

The average cost of homeowners insurance in the U.S. is $1,687 per year, or $141 per month, for $250,000 in dwelling coverage. However, there are multiple variables that influence the cost of homeowners insurance, which means that your premium could differ from the national average. Some of these factors include the location of your home, its replacement cost, the age of plumbing and electrical services in the house, your claims history, and your insurance history.

The location of your home

Firstly, the likelihood of natural disasters occurring in your area will affect the cost of your insurance. For example, homes in areas that are prone to hurricanes, tornadoes, or wildfires will usually have higher insurance premiums. This is because the risk of insuring these homes is higher.

Secondly, the crime rate of your neighbourhood will also impact the cost of your insurance. If you live in an area with a high crime rate, you can expect to pay a higher price for home insurance. Conversely, if you live in an area with low crime rates, you may pay less.

Thirdly, the proximity of your home to certain services and facilities will also affect your insurance costs. For example, living close to a fire station or water hydrant will usually result in lower insurance premiums. This is because you would receive help quicker if your home suffered a fire. On the other hand, living far away from a fire station increases the risk of more damage being caused by a fire, which will increase your insurance costs.

Finally, the location of your home in relation to bodies of water is also important. If your home is near a lake or the ocean, for example, it may be more prone to flooding. This will increase your insurance costs.

The size of your home

Additionally, the size of your home may also affect your liability coverage costs. If you have a larger home, you may be seen as having a higher risk of someone injuring themselves on your property, which could result in a higher premium.

It's important to note that the size of your home is just one of many factors that influence the cost of home insurance. Other factors include the location of your home, the age and condition of the home, the features and materials used in its construction, your credit history, and your claims history.

The construction of your home

When it comes to the construction of your home, there are several factors that can impact the cost of your insurance. If you're building a new home, you'll need a different type of insurance than if you're simply making renovations to an existing property. New home construction insurance will cover the added risks of building a home, like the theft of construction materials or fixtures, and damage to uninstalled equipment. This type of insurance is more specific than a standard homeowners policy and it's important to have it in place before construction begins to protect your investment.

The scope of your construction project will determine the type of insurance you need. For short-term renovations, you can add home under construction insurance (also called a dwelling under construction endorsement) to your existing policy for additional protection. This type of insurance typically covers risks such as fire, storm damage, burst pipes, theft, and other covered perils, as well as soft costs associated with construction delays and building materials. However, it is important to note that this type of insurance is usually only intended for projects that are expected to take less than a month or two.

For more extensive construction projects or new home builds, you'll need builders risk insurance. This is a separate insurance policy that can be purchased by you or your contractor prior to the start of construction. Builders risk insurance covers the structure of your home during construction and protects against risks such as fire, wind, lightning, hail, theft, vandalism, and explosions. The cost of this type of insurance will depend on factors such as location, the type of construction project, construction materials, and the expected completion date.

Once construction is complete, you can switch to a standard homeowners insurance policy. It's important to note that standard homeowners insurance includes coverage for personal property, which is not included in insurance for homes under construction. Additionally, newly constructed homes typically receive a discount on their homeowners insurance policy, so be sure to inquire about this when shopping for insurance.

It's also important to consider the construction type of your home when it comes to insurance. The materials used in the construction of your home can impact the cost of your insurance, as certain materials may be more expensive to repair or replace in the event of damage. Additionally, the age of your home can also impact your insurance rates, as older homes may have more costly materials and features that are more expensive to insure.

The age of your home

Older homes are more susceptible to wear and tear, and outdated systems may not meet current building requirements, leading to higher insurance premiums. For example, homes built before 1950 often have knob and tube wiring, which increases the risk of electrical fires and insurance claims. By updating these older systems, you can improve your home's insurability and potentially lower your premiums.

Additionally, the age of your home's major systems, such as HVAC, plumbing, and electrical, will be considered when calculating dwelling coverage. This is an important factor in determining the replacement cost of your home, which is a significant component in calculating your insurance premium.

Newly constructed homes tend to receive an average discount of 36% compared to older homes. The materials and features in older homes, such as plaster walls and ornate mouldings, can be more costly to repair and replace, leading to higher insurance rates.

Furthermore, historic homes, which are typically larger and more extravagant, may also cost more to insure as they must maintain their original form and character. For instance, if a historic home with wooden columns is damaged in a fire, the insurance company would need to replace them with the same type of columns to meet the historic home guidelines.

In summary, the age of your home significantly impacts your insurance premium due to the increased risk of damage and claims associated with older homes. Updating major systems and maintaining your home's unique characteristics can help mitigate these risks and potentially lower your insurance costs.

Your credit score

A credit-based insurance (CBI) score is calculated differently for each individual insurer and is just one part of how your homeowners insurance rates are determined. A bad credit history may have no impact on your insurance rates, or it could more than double your premiums. Conversely, an excellent credit score could reduce home insurance premiums by 20% or more.

Insurers will usually look at your consumer credit report to see your financial history and assess if you'll be able to pay your premiums. They want to make sure you have a history of paying your bills on time, don't carry too much debt, and don't have a history that includes debt going into collections or filing for bankruptcy.

If you have a poor credit score, it may be more difficult to get approved for coverage or you may be charged higher insurance premiums. Improving your credit score can help you qualify for lower insurance premiums. This can be done by paying your bills on time, paying down loan balances, and keeping credit card balances low.

Frequently asked questions