Home Insurance Basics

WRITTEN BY: Amelia Ciffone

UPDATED: MAY 24, 2022 | 2 MIN READ

Is it your first time buying home insurance? It can be confusing! That’s why we’ve put the important information and answers to frequently asked questions right here in one place. Read on to become an insurance expert in no time!

What Factors Determine Your Home Insurance Premium?

Purchasing insurance for your home can be complicated, overwhelming and expensive for more reasons than just one.  Factors such as location, types of coverage, neighborhood crime statistics and even your credit score can have huge impacts on the yearly rate that American homeowners pay to insure their homes.

While location and neighborhood crime statistics may be some of the obvious factors, there will definitely be a few considerations listed in this article that you may not have given any thought to previously.  Contributing factors such as pets, your personal credit score and the age of your home can all increase or decrease the cost of your recurring insurance premium depending on how knowledgeable you are of the insurance industry.

But what if there was a way to shop for homeowner’s insurance the smart way?  After reading this article you’ll have a full understanding of the below factors and how they may be affecting your home insurance rates.  We’ll also explore how you can potentially decrease your insurance premium rates and influence the way that the insurance company views your home’s risk.

  • Coverage Desired
  • Crime Statistics
  • Replacement Cost
  • Credit Score
  • Proximity to Emergency Services
  • Pets
  • Deductible
  • Age of Home

Coverage Desired: A primary contributing factor

When selecting a home insurance policy there are countless coverage options that will have a direct effect on your insurance premium.  Options such as coverage for additional buildings other than your primary dwelling, natural disaster relief, medical coverage in the case of a loss, personal belonging coverage and more!  As you can imagine, the list goes on.  The amount of coverage that you desire for your home will always be one of the primary contributing factors that insurance companies use to determine premium costs, and for good reason.  If you are in possession of a few valuable cars that are stored in a garage on your property be sure to advise your insurance company because they will be expensive for you to replace and therefore expensive to insure.

Crime Statistics: How do high crime rates influence home insurance policies?

It has always been common knowledge that the crime rate of a given neighborhood directly affects the value of the homes within that neighborhood and even car insurance rates of those same homes.  But did you know that crime statistics can also skyrocket the cost of your homeowner’s insurance premium?  All of the large insurance companies calculate break-in rates, car theft statistics and robberies per capita directly into their formulas for determining the cost of home insurance.  See the “Proximity to Emergency Services” section for potential ways to avoid increased insurance policy costs due to higher than normal crime rates.

Replacement Cost: What is your home worth?

Often regarded as the most important contributing factor to costly home insurance policies, the value of your home directly affects your annual insurance expenses. Simply put, the more your house and its contents are worth, the more you have to lose in the event that a claim is filed. If the value of your home is $500,000, that is the amount of money that your home insurance company has to be ready to write a check for in the case of a pipe burst, hurricane, or fire. At this point you may be considering undervaluing your home to get a cheaper home insurance policy, but that is not the right move either! If your home is undervalued on your home insurance policy, in the event of a total loss you could be left underwater in a home loan and without emergency cash to regroup. Let alone the financial burden of replacing any contents that were undervalued or unaccounted for within your home.

Credit Score: What affect can bad credit have on your home insurance premium?

Just like auto manufacturers and banks, insurance companies perform credit checks to research the credit history of every client and determine if and how their credit score may come into play.  The reason being that most insurance companies closely correlate a high credit score with a low likelihood of filing an insurance claim against your house and a low credit score with the opposite.  While it is possible to obtain homeowners insurance with a lower than average credit score, your likely to see the difference in your premium rate.  It is worth noting that a credit score is one of the few factors on this list that can be remedied throughout the ownership of a home.  Unlike crime statistics which may take decades to change, it is possible to reverse the decline of a credit score in just a few months.

Proximity to Emergency Services: How important is location?

Not only does the location of your home effect it’s value, the quality of schools available and your car insurance premiums, location also plays a huge role in calculating home insurance costs.  Your residences proximity to emergency services such as a fire station or fire hydrant can have a larger effect on your home insurance premium than you may have imagined.  From the insurance company’s standpoint, the closer your home is to a fire station or high-volume fire hydrant the less likely you are to suffer a total loss during a house fire.  This principle applies in a similar fashion to police stations where there tends to be lower rates of crime and quicker response times in emergency situations.  In the case of a break-in or robbery, a home security system directly linked to a local police station is shown to decrease loss.  Home security systems, gates, cameras and motion sensors are all ways to ease an insurance companies mind when it comes to a neighborhood known to have high crime rates. 

Pets: Are my pets contributing to my home insurance premium?

While pets may be one of the less influential factors in calculating a home insurance premium, they can still cost an insurance company a lot of money. Pets can cause a lot of damage to homes, but the real expense comes from liability insurance for dog owners. If your dog bites someone, the victim could sue you for their medical expenses. Many people don’t know that homeowners liability insurance covers those costs. That means that homeowners insurance policies may charge more for certain breeds the consider aggressive or likely to bite. 

If you already have a home insurance policy in place and are looking to acquire a few animals, it may be worth your while it put in a quick call to the insurance company to see what coverage options are available and how the new pets may affect your rates.  In some cases, particularly if your pet has a history of violence it may affect your ability to file an insurance claim in the future.    

Deductible:  How are deductibles and premiums related?

If you’ve considered all of the factors listed above and are still wondering why your home insurance premium is higher than you’d expect it to be, the reason might be your low deductible.  In the case of a small claim such as a few broken windows, the difference between a $1,000 deductible and a $5,000 one may seem large.  But consider the total loss of your house.  A $5,000 deductible would be a drop in the bucket compared to the replacement cost of an entire home that the insurance company would be stuck with writing a check for.  Depending on the environmental risk associated with where you live, raising your deductible by a few thousand dollars may be a rational way to noticeably impact your recurring home insurance premium while still maintaining the levels of coverage that keep your family feeling safe.

Age of the Home: Does my premium naturally increase as my home ages?

The simple answer is yes, although there are some projects that can decrease the impact of depreciation caused by wear and tear such as repainting or the replacing of an old roof.  Depending on the age and build style of your particular house or the single-family home that you are looking to purchase, there may have been materials used that are no longer considered up to fire code.  Along the same lines it is true that houses made entirely of brick or concrete tend to carry a cheaper insurance premium than craftsman style homes made entirely of wood.  In addition to the materials used in your house’s construction, the age and style of appliances may also carry some weight.  For example, a hot water heater from the 1970’s that has never been replaced set in a wooden home might raise some eyebrows.

Replacing older appliances such as stoves, hot water heaters and furnaces can be an easy way to decrease the risk associated with an older home!

In Conclusion

When you’re searching for the ideal home insurance policy to fit your perfect new home keep all of these factors in mind and try to imagine how they may be influencing the premium quotes you are receiving.  The more you know about the insurance company your dealing with and the process that they use to calculate premiums, the more likely you are to come out ahead.

Is there anything that you can do to change the factors or how the insurance company in question views them?

While there is a lot of generalizing that goes on in the realm of home insurance it is possible to cut through the assumptions and portray your situation in the correct light.  The installation of security cameras, improving of a credit score or raising of a deductible are just a few ways that you can directly affect your home insurance premium without moving or looking for a new home.  It is a balancing act determining the amount coverage you need and matching that to your family’s budget for home insurance but there can be a happy meeting point in the middle.   

Frequently Asked Questions about Homeowners Insurance

Home Insurance How-To Guides

What to Do