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Homeowners Insurance: The Basics and How to Cut Costs

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

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.  

How to Lower Your Homeowners Insurance Costs

According to the Insurance Information Institute, here are 12 ways to lower your homeowners insurance costs.

  1. Shop around

  2. Raise your deductible

  3. Don’t confuse what you paid for your house with rebuilding costs

  4. Buy your home and auto policies from the same insurer

  5. Make your home more disaster resistant

  6. Improve your home security

  7. Seek out other discounts

  8. Maintain a good credit record

  9. Stay with the same insurer

  10. Review the limits in your policy and the value of your possessions at least once a year

  11. Look for private insurance if you are in a government plan

  12. 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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