- How much your homeowners insurance policy costs depends on a number of factors, including the cost of replacing—not just repairing—your home and belongings.
- Your credit and claim history could also have an impact, as well as where you live.
- There are a few ways to save, such as purchasing your homeowners and auto insurance from the same company.
- Keep in mind that more valuable items like jewelry or antiques may require additional coverage.
A home is one of the most exciting purchases many of us will make in our lives, but it’s also one of the most expensive. In addition to the cost of the home itself, you’re also on the hook for costs like a down payment, closing costs, property taxes and more.
But one of the most important purchases you’ll make for your home is homeowners insurance, which protects you against financial losses. The cost of homeowners insurance depends on several key factors, including where you live and the size of your home.
In this article, we’ll discuss what the average homeowners insurance costs and explain the factors that might increase or decrease your premiums.
Inside this article
What is homeowners insurance?
Homeowners insurance is a type of property insurance that protects you from financial loss related to your home. This type of insurance generally does three different things:
Protects you from financial loss due to damage or destruction of your home
Covers your financial liabilities if someone is injured in your home or someone in your family causes property damage to someone else’s home
Protects you from financial loss due to damage, destruction or theft of your personal property
Why you need homeowners insurance
According to the Bureau of Labor Statistics, housing is the single largest line item in most people’s budgets. In fact, it’s more than twice the amount of the next largest item in most budgets.
And homeowners insurance can cost more than $1,000 per year. But for the vast majority of people, homeowners insurance is a necessary expense.
First, while there’s no legal requirement that homeowners carry homeowners insurance, mortgage lenders do require it. If you’re applying for a mortgage, you’ll have to provide proof of insurance before you can even close on your loan. And as long as you have a mortgage, your lender will require that you maintain insurance.
Even if you purchased your home in cash or have already paid off your mortgage, homeowners insurance is still necessary.
According to Zillow, the median home value in the United States is $316,368, and that doesn’t even include the value of the personal belongings in your home. If you experience a total loss due to a fire or another hazard, not having homeowners insurance would be financially crippling for most people, as most of us don’t have hundreds of thousands of dollars on hand to replace our homes.
It’s also easy to tell yourself you’ll never have to file an insurance claim. After all, if nothing bad has happened to your home so far, what are the chances of something bad happening in the future?
Data from the Insurance Information Institute shows that in the five-year period from 2015 to 2019, roughly 4.7% of households filed a homeowners insurance claim, with the top claims being due to wind, hail, water damage and freezing. While those seem like good odds, that 4.7% was only over five years. Over a longer period, the percentage is higher.
The fact is that you simply can’t predict when a hazard will strike, whether it be a terrible storm, a fire caused by faulty wiring, or even theft or vandalism. Homeowners insurance takes the risk off of you and puts it on your insurance company.
How much homeowners insurance costs
According to 2018 data from the National Association of Insurance Commissioners (NAIC), the national average cost of homeowners insurance is about $1,249 per year. That comes to roughly $104 per month.
It’s important to note that, like most things, the cost of homeowners insurance varies dramatically based on where you live. The same NAIC report shares individual state data, and while the national average is $1,249, some states have an average insurance premium that’s well under $1,000. On the other hand, there are some states where residents pay an average rate that’s closer to $2,000.
The cost of homeowners insurance is heavily impacted by local weather patterns. For example, those states located in flood zones or at high risk of wildfire tend to pay the highest premiums because it’s more likely you’ll have to file a claim.
The cost of homeowners insurance also depends on several factors personal to you, including the cost to rebuild your home, your claims history, the amount of personal property coverage and liability coverage you purchase, your credit history and your deductible.
Online tools like the ones at Policygenius, The Zebra and Quote Wizard have made it easy to estimate your homeowners insurance costs in just a few minutes. Enter your location and answer a few questions about yourself and your home, and you’ll be able to get a good idea of how much you can expect to pay in homeowners insurance.
Tip: There are also plenty of ways to reduce your homeowners insurance costs by taking advantage of the discounts your insurer offers. Discounts are available for bundling your home and auto policies, installing security features in your home and more.
How much insurance do you need?
When you’re shopping for homeowners insurance, it can be difficult to know just how much coverage you need. To address this question, we’ll break it down into the three major components of your homeowners insurance policy.
Your homeowners insurance policy should provide enough coverage to fully rebuild your home in the event of a total loss. This number is likely to be different from the market value of your home, so it’s important to do your research.
To quickly estimate the cost of rebuilding your home, multiply your home’s square footage by the local building costs per square foot, which you can learn from a local insurance agent, real estate agent or builders’ association. Other factors that may increase or decrease the cost include the style of your home, the materials used and any special features in your home.
Your homeowners insurance policy should also include coverage for your personal belongings. Not only will your policy cover the cost of replacing these items if there’s a fire or other damage to your home, but also in cases of theft.
To determine how much personal property coverage you need, take inventory of the items in your home. Using a spreadsheet, you can make a detailed list of your belongings and their estimated value. Not only will this list help you estimate how much insurance coverage you need, but it will also come in handy if you have to file a claim, since you’ll have a list readily available for your insurance company.
Tip: Keep in mind that most homeowners insurance policies provide coverage for personal property up to 50% to 70% of your dwelling coverage, and that more valuable items like jewelry or antiques may require special coverage.
The liability coverage in your insurance policy covers any damage you’re responsible for due to bodily injury or property damage. These liabilities could include someone being injured in your home, someone in your family injuring someone else outside your home, or someone in your family causing property damage to someone else’s home.
A typical homeowners liability coverage amount is about $100,000, but depending on your net worth and what risk factors you have in your home, it may be worth purchasing even more.