Average Cost of Homeowners Insurance / Home Insurance
Welcome to The Average Cost of Things, where we help you get a better perspective on prices. In this article, we will talk about the average cost of a homeowners insurance policy, and what you can do to control the costs.
Before we talk about pricing and cost information, let's briefly discuss what home insurance is and how it works.
What is Home Insurance Anyway?
Home insurance goes by several names. It's also referred to as hazard or homeowners insurance. Regardless of what it's called, this type of insurance protects your home and the contents within it (personal property). Protecting your investment is the main reason you should get homeowners coverage. But if you're using a mortgage to pay for the house, you have another reason to get home insurance -- your mortgage lender will require it.
What's the Average Cost of a Policy?
So how much does a home insurance policy cost these days? Well, according to the National Association of Insurance Commissioners, the average cost for homeowners insurance in 2006 was around $804. This is a national average, and some states are much higher and lower than this number. We will get to the most and least expensive states in just a moment.
There seems to be a lack of current data available on this subject. We searched high and low and kept coming up with average insurance costs from 2006, as the most recent data set. Most of the compiled data for this industry lags behind by two or three years. The only recent averages we could find were anecdotal in nature. These figures varied from $800 to $1,100 for a homeowners insurance policy, but as mentioned they were not from official data sources.
The most expensive states for home insurance coverage include Texas ($1,500 for a policy), Florida and Louisiana. The least expensive include Idaho ($477), Wisconsin and Utah.
What Determines the Cost?
With averages aside, here are the primary factors that will determine the actual cost of your homeowners premium:
- The value of the property, as determined by a professional home appraiser.
- The state where you reside.
- The location of the home (is in a flood-risk area, for example).
- The value of the personal property within the home.
- The amount of your deductible (raising the deductible lowers the premium)
- Discounts for burglar alarms, smoke detectors, dead-bolt locks, etc.
How to Lower the Price of Homeowners Coverage
So that's the average cost of a homeowners insurance policy. The question now is, what can you do to control the cost of coverage? There are several things. First of all, it's important to understand the relationship between the deductible and the premium. Here are some basic definitions:
- Deductible -- This is the amount of money you must pay before the insurance company's coverage will kick in. If you have a homeowners policy with a $1,500 deductible, and you make a damage claim against the policy, you'll have to pay $1,500 of the damages before your providers covers any of the remainder.
- Premium -- This is how much you pay for your policy, on a monthly or yearly basis. The average cost of home insurance given in this article refers to the annual premium. So when we say that a policy costs $800 on average, we are referring to the amount paid annually (the premium).
The easiest way to lower the cost of your premium is by raising the deductible. The Federal Citizen Information Center says the following: "Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent.
Some insurance companies check the credit scores of their customers, and they use that score to price the policy. So you might be able to save money by having good credit.
Ask about discounts. Different companies offer different discounts, so you'll have to check with your homeowners insurance provider to see what's available. If you get the policy with a company you're already doing business with (for your auto policy, perhaps), then you might qualify for a multi-policy discount.
To create this guide to the average cost of homeowners policies, we used information from the following: The National Association of Insurance Commissioners. The Federal Citizen Information Center. The Insurance Information Institute. We also visited some online forums and social media websites to gather anecdotal information from consumers / buyers.
Recommended Reading on Home Insurance
On our parent website (Home Buying Institute), you can find a lot more information on this subject. You can also get online quotes from several providers at once, which is a great way to get the shopping / comparison ball rolling.
Here's a good page to start on:
Home Insurance Quotes and Information
We hope you enjoyed this lesson on the average cost of home insurance policies. Good luck with your continued research!