You’ve negotiated a good deal on your new dream home.
It’s in the perfect neighborhood and in great shape. Even better, those monthly mortgage payments won’t stop you from going out to a nice dinner occasionally or even heading off on vacation. Everything is perfect.
But hold on. Did you factor in the cost of homeowners insurance? Thankfully, the cost of homeowners insurance typically doesn’t have a big enough impact that you end up stuck inside your new home. Still, it is extremely important to factor in insurance costs to figure out what’s right for your situation—and your budget.
Of course, lenders almost always require homeowners insurance before signing off on the loan. And even if you’re fortunate enough not to need a loan, you’ll need good insurance to protect your investment.
You know you need it, but how much will you pay for it? According to Realtor.com, the average annual premium is about $1,900.
But depending on your situation, you could pay more or less than average. Just how much depends on several factors that we will explore, including your deductible, the value of your home and belongings, your history of claims, and other variables such as the cost and age of your home.
Selecting the Right Deductible for You
Your deductible is one key factor in how much you will pay. If you select a policy with a high deductible, the annual cost for your insurance policy should be lower. Of course, when you go to make a claim, you will pay more out of pocket to meet that deductible. Conversely, if you pick a lower deductible, the cost of your insurance will be higher, but you won’t suffer sticker shock when it comes time to put in that claim. Figuring out your household expense (and entertainment) budget is one way to decide on whether to go with a higher or lower deductible. Whatever deductible you choose, it’s a smart idea to have that amount stashed away in your emergency fund so you’re financially prepared in case you need to file a claim.
How Much Coverage is Enough?
While we’re focusing on the actual cost of homeowners insurance, it’s essential that you get the right amount of coverage. Specifically, you need enough insurance that would allow you to rebuild your home in the event of a total loss. In other words, don’t pinch pennies by choosing a lower limit that will hurt you in the event of a catastrophe.
Ask your agent about replacement cost versus actual cash value. Replacement cost is typically the way to go because you could rebuild after a major loss without concern for depreciation. And for added protection, ask your agent about the guaranteed replacement cost.
Home Improvements Could Affect Cost (and Limits)
Is your new home going to be move-in ready or a fixer-upper? If you are planning on doing major upgrades to your home that will boost its value, keep in mind that the cost to insure it will likely rise, as well. If and when you do a home improvement project, report that to your insurance company so they can adjust the limit if necessary.
If your ‘home improvement’ project is the result of major damage to your home… make sure you have what’s known as “loss of use” coverage. That coverage can reimburse you for hotel costs or apartment rental if your home is a total loss or becomes uninhabitable after a covered loss.
Make Sure You Have Enough Liability Coverage
Lawsuits are pretty common these days and can be extremely costly. That’s why you should make sure you buy an appropriate amount of coverage. When you buy homeowners liability coverage, you’re investing in peace of mind. Homeowners liability coverage protects your assets in case someone gets hurt on your property. You might not realize this, but it also provides coverage for some incidents away from the home. You might also want to consider a Personal Catastrophe Liability policy, which adds another $1 million to $5 million in liability coverage to your homeowners as well as your auto coverage.
The Value of Your Home and Your Possessions
It’s a pretty simple formula – if your home costs more, you’re going to pay more to insure it. You need a good, solid assessment of your home’s worth. It also helps to estimate the value of your personal possessions through a home inventory. While it might seem daunting, creating a home inventory is easier than you think.
Also, you might want to consider an appraisal for high-value belongings and talk to your insurance agent to see if you should consider any supplemental coverages to make sure your valuables are properly covered.
Your History of Claims
When it comes to insurance, your past can influence your future. How much you pay for homeowners insurance can be significantly affected by how many claims you’ve made previously. It stands to reason that homeowners with fewer claims would pay less, and those with more claims would pay more. Those with more claims are proven to be a higher risk for insurers.
Geography
Geography — as it relates to the frequency of natural disasters — also plays a role in your costs. If your home is near an area that is prone to hurricanes, tornadoes, or forest fires, to name some examples, your homeowner’s insurance is going to be more expensive. Learn more about how named storms affect your insurance coverage.
Customize Your Coverage With Endorsements
Think of endorsements as added options to customize your policy, and we have a bunch.1 For example:
- Extended Water2: This endorsement brings peace of mind by covering water events such as backup of sewers, drains (separate Water Backup endorsement required in North Carolina) or floods, which also include inland flooding, tidal water, storm surge or mudflow and mudslides.
- Identity Recovery Coverage: Add this coverage for a low annual fee to help restore your credit in the event of identity theft or fraud. You’ll also get your own dedicated case manager who will walk you through the process step-by-step.
Available endorsements differ by policy and state, so check with your local agent about which ones are the best fit for you and how much they’d cost to add on.
What Else Can Affect the Price of My Homeowners Insurance?
There are several other factors that could influence how much you pay for homeowners insurance.
- The age and condition of your home: Owning a newer home may cost less to insure than a similarly priced older home as it is likely outfitted with newer equipment and more modern safety features. The condition of older homes can be pretty wide-ranging and includes the roof, pipes, heating system, and electrical wiring. It’s important to note that equipment breakdowns are typically not covered by homeowners insurance, however damage caused by a breakdown is covered in some instances.
- Your credit score, age, and other personal information: No surprise here: A higher credit score usually results in a lower rate.
- Recreational and potentially risky amenities: Some features, such as a swimming pool, signal potential risk for insurers, and your premium could reflect that.
How Can I Save Money on My Home Insurance?
You could reduce the amount of your premium if you have security features such as a security alarm system, carbon monoxide detectors, and smoke alarms. Check with an insurance professional, like your local insurance agent, about potential discounts.
What’s a Good Price for Home Insurance?
Shopping for insurance solely on price can end up being a costly mistake. You should compare the costs of homeowners insurance while making sure you have a clear understanding of what each insurer covers. A great deal isn’t so great if you end up shelling out a lot more money in the event of a major claim.
After you’ve done your research and assessed your specific needs, you should be worry-free enough to relax and enjoy your new home, knowing you’re covered with the right insurance at the right price. Learn more about homeowners insurance and request a free quote online – give us a call today.
ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York). The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.
The insurance products and rates, if applicable, described in this blog are in effect as of January 2024 and may be changed at any time.
Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions.
The insurance products and services described in this blog are not offered in all states. ERIE life insurance and annuity products are not available in New York. ERIE Medicare supplement products are not available in the District of Columbia or New York. ERIE long term care products are not available in the District of Columbia and New York.
Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.
Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.
