Original Post: 6/28/24; Updated Post: 8/29/24
This post is for folks seeking a plain language and quick explanation of homeowners insurance and ideas to reduce the cost of homeowners insurance.
Homeowners Insurance: Definition
Homeowners insurance provides financial protection in the event of a disaster, accident, or theft involving their home. Mortgage lenders usually require homeowners' insurance as part of a mortgage. The details and components of each policy will vary.
Homeowners Insurance: Cost
A Grave Warning from the Congressional Budget Office
On August 27th, The Congressional Budget Office Released the report: Climate Change, Disaster Risk, and Homeowner’s Insurance. According to their report summary:
"Climate change heightens the risks of wildfires and other natural disasters. As insurance payouts for losses sustained in those disasters increase and as uncertainty about future losses grows, people in many high-risk areas have faced difficulty obtaining or affording insurance coverage for their property.
As risk and costs increase, premiums will increase as well, which may make insurance less affordable for homeowners. If state regulators do not allow higher premiums, insurers may exit high-risk areas, reducing the availability of insurance."
Homeowners Insurance: Natural Disasters
Insurance providers are raising premiums or restricting coverage because of the increasing risks of natural disasters. Insurance providers have limited their business or pulled out in some states, including Florida and California.
Homeowners Insurance: Premium
A homeowners insurance premium is the amount of money you pay to your home insurance company in exchange for a homeowners insurance policy. Payment options vary by insurer, but home insurance premiums are typically paid monthly or annually.
Homeowners Insurance: Premium Averages
Homeowners insurance costs have increased over 200% over the last 20 years.
Homeowners Insurance: Premium Factors
Premiums can vary significantly based on the home value, location (proximity to crime and natural disasters) and even your credit score.
Homeowners Insurance: Deductible
A homeowners insurance deductible is the amount of money a homeowner pays out of pocket before their insurance company covers a covered claim.
Homeowners Insurance: Deductible Average
Most deductibles are fixed dollar amounts, such as $500–$2,000, but they can also be percentages such as 1–5% of the home's insured value. Deductibles typically range from $100 to $5,000. The average is $1,000.
Homeowners insurance rates by state
The national average cost of homeowners insurance for a $300,000 dwelling is $2,270 per year, but costs vary by state. A baseline estimate of what other people in your state pay for home insurance will help you when shopping for home insurance, since you'll know both the national average and how your state compares.
Below is a map and table showing the average cost of homeowners insurance by state and percentage of income spent by state. Click on the image or click here to access the interactive Bankrate map of homeowners insurance costs.
How to Lower Your Homeowners Insurance Costs
According to the Insurance Information Institute, here are 12 ways to lower your homeowners insurance costs.
Shop around
Raise your deductible
Don’t confuse what you paid for your house with rebuilding costs
Buy your home and auto policies from the same insurer
Make your home more disaster resistant
Improve your home security
Seek out other discounts
Maintain a good credit record
Stay with the same insurer
Review the limits in your policy and the value of your possessions at least once a year
Look for private insurance if you are in a government plan
When you’re buying a home, consider the cost of homeowners insurance
Click here to read the detailed suggestions of each price reduction strategy.
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