When you buy a new home, homeowners insurance is one of the most essential purchases you need to make. A homeowners policy provides a layer of financial protection for your home, the property you store inside it, and the potential liability issues of your guests (such as a “slip-and-fall” accident). Buying homeowners insurance isn’t just a smart financial decision — many lenders also require proof of homeowners coverage as part of your mortgage agreement.
This is an extremely common question for people purchasing their first home, and it can have a surprisingly complex answer. For many, a simple Google search for “average cost of homeowners insurance” can produce a wide variety of answers. This can make determining how much you should spend on homeowners insurance quite difficult.
We are here to help walk you through all you need to know to determine the average cost of rates. Including, every important detail that goes into the cost of your homeowners insurance policy. Along the way, we’ll explain the varying factors that affect your homeowners coverage expenses.
This seems like a fairly simple question. However, as we mentioned earlier, it’s a question without the easy answer you might expect. Depending on who you ask, the average cost of homeowners insurance in the United States today costs anywhere from $1,000 per year to nearly $2,000 annually. What is the real answer?
We decided to go straight to the source for this one. The National Association of Insurance Commissioners (NAIC) is “the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territories.” In the 2021 edition of its annual Homeowners Insurance Report, the NAIC breaks down average premium costs by the amount and type of policy. For an HO3 policy (by far the most common form of homeowners coverage), the average annual premium in the U.S. today is roughly $1,249.
It’s important to note that typical homeowners insurance premiums fluctuate widely from state to state. Depending on where you live within the U.S., you could expect to pay much higher or lower rates than that $1,249 figure suggests.
There are quite a few factors that determine the average homeowners insurance rates for each state. For starters, states with more frequent natural disasters (such as tornadoes, hurricanes, wildfires, etc.), have significantly higher average homeowners insurance premiums than states with infrequent disasters. That’s why people in Louisiana pay the highest rates in the nation for homeowners insurance — the frequency of powerful hurricanes making landfall in this state drives costs to extremely high levels. In fact, the average Louisiana homeowner pays about $2,000 per year for homeowners coverage.
In addition, the next four states in the top five most expensive states for homeowners coverage all have significant weather risks as well. Texas and Florida round out the top three, showing you just how costly hurricanes can be. The fourth and fifth states on this list are Oklahoma and Kansas, two states where tornadoes are frequent occurrences.
Another significant factor that can drive up homeowners insurance premiums is density. States with several densely-populated big cities are typically more costly for homeowners coverage because homes in these states are so much more valuable than the average home in a largely rural state. For instance, New York has much higher rates for homeowners coverage than Idaho does.
Looking at the top five most affordable states for homeowners insurance premiums, it’s clear that the cheapest states for homeowners coverage are those without big cities or natural disasters. Oregon, Utah, Idaho, Nevada, and Wisconsin all have no more than one or two major cities, and none of them experience hurricanes or tornadoes with much frequency.
The location of your home is the most significant factor for home insurance premiums. In fact, location-based pricing doesn’t just take place at the statewide level. Insurance providers factor in your location right down to your specific ZIP code. Even within the same city, differing crime rates and neighborhood home values can significantly impact your homeowners premiums.
We’ve established by this point that your location carries a lot of weight in determining the overall cost of your homeowners insurance. However, location is just one of many factors insurers use when setting your rates.
The company you choose to provide your homeowners insurance package also has a tremendous influence on your annual premium. This is because, unsurprisingly, different companies charge different prices for similar services. It’s important to understand that these insurers also have varying rates by state. In other words, just because one company is cheaper in Nebraska doesn’t mean they’ll also have the best rates in South Carolina.
That said, it’s still advisable to have an idea of which companies tend to charge lower rates than the competition. For the most part, MetLife and Nationwide have higher-than-average homeowners insurance premiums, while Progressive and Travelers are two of the most budget-friendly major insurance companies.
The amount of coverage you purchase for your home is another significant factor for homeowners insurance pricing. The portion of your homeowners insurance package that covers damages to your house structure is called “dwelling coverage.” As the price of your dwelling increases, so does the cost of dwelling coverage. It’s probably no surprise that insurance for expensive homes is more costly than coverage for more affordable homes.
However, there can still be some sticker shock involved when looking at pricing data for valuable houses. According to the same NAIC study we cited earlier, an inexpensive home costing less than $50,000 will only cost about $645 to insure for a full year. Meanwhile, a house that’s worth at least half a million dollars has homeowners insurance premiums of roughly $2,148 per year.
The different pricing factors discussed in this article often combine with each other as well. For instance, it’s extremely unlikely that the $50,000 home we just mentioned is located anywhere other than a small town or rural area. Have you ever heard of a $50,000 house in New York or Los Angeles? Neither have we! Likewise, homes costing at least $500,000 are far more common in a city than they are in the country.
The three factors we’ve discussed so far — the location, the insurance company, and the home’s value — are the most significant factors that affect all homeowners regarding insurance costs. However, there are also some more personally tailored aspects that can also make a big difference when it comes to your annual premium rates. In this section, we’ll discuss what these factors are and how they can affect your overall homeowners insurance costs.
This criterion is causing quite a bit of controversy these days, and for good reason. Some states have passed laws preventing insurers from considering a homeowner’s credit score when setting their insurance rates, but the vast majority of states still allow insurance companies to determine premiums based on the policyholder’s credit history.
The argument against allowing this is pretty simple: the policyholder’s credit score has no effect on the home’s location, value, or repair costs, so it shouldn’t be factored into premium rates. However, insurance companies have successfully argued for years that people with poor credit scores tend to file more claims than individuals with strong credit.
It wouldn’t surprise us to see more states adopting rules against insurers using a homeowner’s credit history as a pricing metric in the coming years, but for now, your credit score is a significant contributor to your homeowners insurance premiums.
Simply put, individuals who make more insurance claims end up paying more for their premiums. One important aspect of this factor is the fact that insurers will consider your comprehensive claims history when determining your rates. This means that, instead of focusing solely on your past claims with homeowners coverage, they will also look at your current and prior renters insurance, auto insurance, and other policies.
This is another reminder of how important your location is for homeowners insurance pricing purposes. That’s because insurers don’t just consider your personal claims history — they also factor in the claims history of your location. If people in your area file lots of claims, the insurer will assume that you too will file a higher-than-average number of claims.
The value of your home is only part of the insurance company’s equation when trying to figure out how much it would cost to repair damages. Insurers also heavily weigh the age of a home. This is because older houses are much more likely to have outdated elements — such as an antiquated electric wiring system or old plumbing — which increase risk factors.
There are even some circumstances where an insurance company might request updates to your home before agreeing to insure it. For instance, if your home was built in the 1960s or 1970s, there’s a chance that it has aluminum wiring (aluminum wires were quite popular in this era due to their lower costs compared to copper). Some insurers refuse to cover houses with aluminum wiring and will inform you that you need to switch out your wiring for copper before they’ll provide coverage.
Does your home have a backyard pool? Is there a tree-house in one of the trees on your property? Did the previous homeowner build a “she shed” for arts and crafts? Do you have one of those big trampolines for your kids? If the answer to any of these questions is “yes,” then it’s likely that your insurance company will increase your premiums based on these accessories.
One simple way you can directly alter your homeowners insurance premium is to change your deductible. As with any other type of insurance coverage, raising your deductible will lower your premiums and vice versa. If you increase your deductible to decrease your premiums, just make sure you’re not setting the deductible so high that you can’t afford to pay it if you make a claim.
Depending on the company you choose, you may be eligible for some discounts. Most insurers offer discounted rates for customers who bundle different policies — for instance, you’ll likely pay lower rates for your homeowners and auto insurance coverages if you purchase them from the same company. You may also qualify for a loyalty discount if you stay with your insurer for several years, as well as discounts for not filing claims if you have an infrequent claims history.
Some companies offer home-specific discounts as well. Typically, these revolve around the installation and maintenance of safety features in and around the home. For example, you might qualify for a discount if you have a security system, fire sprinklers, smoke and carbon monoxide detectors, and other similar features.
Overall, there are many different variables that can play a part in determining your homeowners insurance costs. For most people, the most significant factors are the home’s location, the company you choose to provide your insurance coverage, and how much coverage you buy. In addition, credit history, claims history, the age of the home, accessories, deductibles, and discounts commonly increase or decrease homeowners premiums.
The best way to make sure you get the most affordable rates for the coverage you need is to shop around with different companies. Request personalized quotes from several insurance providers in your area and compare what each company offers for its rates. Don’t focus solely on pricing either — the inclusions and coverage levels of your policy are often just as important as your premium cost, and sometimes more.
If you want to find the best deal for your homeowners insurance coverage, you should keep an open mind and carefully consider what each company has to offer. If you become too hyper-focused on any individual company’s offerings, you might miss a better deal right under your nose!