Several factors affect the cost of home insurance. The most significant factor is the likelihood that you will file a claim; each company weighs these pricing variables differently.
Other critical criteria include the size and location of your property, your credit score, and whether you have security features on your home—policy choices like the deductible and coverage limits also impact rates.
The home insurance policy protects your house and property against damages or losses from fire, weather and other hazards. Homeowners policies typically also provide coverage for your personal possessions and liability protection from claims due to injuries to others on your property. Separate policies may be purchased for flood and earthquake coverage. There are many variables that affect your premium, such as where you live and how your home was built. You can often get quotes from several companies and compare the various options that are available to you.
Generally, the standard homeowners policy covers your home, its fixtures and built-in appliances and other structures on your property, including fences and sheds. You will want to make sure that the dwelling coverage limit is high enough to cover the cost of rebuilding your house in the event of a loss, based on local labor and material costs. You can usually obtain this information from your producer or insurer.
Your deductible is another variable that will affect your premium. Generally, the higher the deductible you select, the lower your annual premium will be. However, be careful not to select a deductible that is too high, as the expense of paying for small claims or problems can add up over time.
Most companies offer optional coverages that can be added to your policy to provide additional protection. For example, you can purchase an ordinance or law endorsement that will pay for the extra cost to rebuild your home to meet new building codes that were not in place when it was originally built. Another option is to add a personal property endorsement that provides coverage for items such as silverware, computers, guns and expensive antiques.
You will want to consider the additional living expenses (ALE) coverage that is included in most home insurance policies. This provides payment for temporary housing costs incurred when your home is damaged and cannot be lived in until repairs are made. You should also review the personal property section of your policy to be sure that it adequately covers the value of your belongings and that any special limits, such as for electronics or jewelry, are adequate for your needs.
Claims
Depending on the nature of your loss and your claims history, filing a claim can affect the premium you pay for home insurance in the future. The amount you pay is determined primarily by your insurance company’s risk assessment, so a significant loss can cause a substantial increase in your rate. Filing multiple claims in a short period of time may also raise red flags for insurers and cause them to deem you high risk. This could lead to your policy being canceled or your rates increasing substantially.
Many home insurance policies offer discounts for a variety of reasons, including having a home alarm system, bundling with other types of coverage and being claims-free. Before buying a policy, be sure to ask about any discounts that can help you lower your premium.
There are some instances when it makes sense to file a claim, such as when the damage is catastrophic and goes well above your homeowners deductible. However, for small repairs and maintenance issues, it is usually more cost-effective to pay out-of-pocket rather than filing a claim.
A common misunderstanding is thinking that your home insurance will cover any type of damage to your personal belongings, but this is not always the case. Most home insurance policies only cover up to a certain percentage of your dwelling coverage for personal items. Adding an endorsement can often increase this limit, but it is important to understand what the added costs will be.
A claim can be made online or through a mobile app, and you will generally need to submit pictures of the damage and give an estimate for repair. In addition, it is often helpful to have a list of your belongings in order to make the process as simple as possible. Additionally, using contractors that are in the provider’s network will usually speed up the process and may even help you to avoid additional unforeseen costs.
Policy Limits
Many home policies have limits that determine how much a company will pay in the event of a loss. These limits are generally chosen by the insured. For instance, a dwelling limit may be set to cover the cost to rebuild your house at today’s labor and material costs rather than its market value. This type of coverage is called replacement cost. Some companies provide an Inflation Guard Endorsement that automatically increases the policy’s limits in accordance with inflation (up to a certain amount per year). This helps you avoid being underinsured.
In addition to a dwelling coverage limit, home policies usually have a separate personal property (contents) limit. This is typically based on a percentage of the dwelling limit and covers your furniture, clothes and other items. If you have valuable possessions, such as jewelry, fine arts or electronics, consider getting a higher limit. Home policies also often have a separate additional living expense (ALE) limit, which pays for your expenses to live somewhere else while the damaged home is being repaired. This limit is typically 10 to 20% of the dwelling coverage limit. Be sure to watch your expenses so you don’t reach this limit before the damage is repaired.
Liability coverage is also limited in most home policies. This type of coverage pays for damages and medical expenses incurred by others if you are found legally responsible for injury or property damage. It is important to have enough liability insurance to protect your savings and other assets.
Some home policies include a special limit for securities, accounts, deeds and letters of credit. These are typically subject to a lower limit than the general personal property limits, but you can buy additional coverage for these items.
Riders
Homeowners insurance riders allow policies to be customized to the individual needs of the policyholder. They can include coverage for specific items of value, or they can protect against certain natural disasters that would require a separate policy, such as flood insurance. Many homeowners also purchase riders to cover things like earthquake damage, which may not be covered by standard homeowners policies.
A few types of home insurance riders are scheduled personal property, water backup coverage, and building code coverage. Scheduled personal property riders add additional coverage for items of significant value, such as jewelry and antiques. They typically offer higher limits than a standard policy, and they also provide protection from risks that a standard home insurance policy might not cover, such as loss or misplacement. Water backup coverage adds additional protection against flooding from backed-up drains and sump pumps, while building code coverage pays to bring a damaged structure up to current safety standards.
Each of these riders is usually available as an optional addition to a standard policy. Depending on the type of rider and its coverage limits, these optional policies can cost between 1% and 2% of the annual dwelling coverage amount. However, it is important to note that adding a rider to a home insurance policy will increase the overall premium amount.
In order to determine if a home insurance rider is worth it, the homeowner must first take inventory of their belongings and assess their individual needs. For example, if you have a painting by an Appalachian artist that is worth more than $10,000, you will likely need a riders to ensure it’s fully covered. Another situation that warrants the use of a home insurance rider is when a homeowner has a hobby or craft that requires materials of a high value. In these situations, it’s a good idea to discuss the possibility of a rider with an agent, as they can help determine the appropriate level of coverage needed.
It’s also a good idea to speak with an agent when you’re initially purchasing a home insurance policy, but it’s not always necessary. In some cases, homeowners will only be able to add riders after their policy is in place, or at renewal time. Regardless, having details about your possessions ready (and a list of them, if possible) will make the process easier and more efficient.