If you’re a first time home buyer, you may be unsure if homeowners insurance is a necessity when buying a home or how much it costs. While you may not want to add onto your new home bill, it’s worth the extra expense when you realize all the future costs it can protect you from. Also, your mortgage lender is likely to require that your new home be insured. This recent Realtor.com article by Margaret Heidenry explains what factors go into the cost of your homeowners insurance.
Age and condition of your home
This includes everything from a house’s roof to its pipes, heating system, and electrical wiring. For instance, the lead and galvanized pipes found in older homes “result in higher premiums as they are more prone to cracks or leaks than the copper and plastic piping used in newer homes,” says Paul Boudreau, insurance broker at Rowat Insurance.
Price to rebuild per square foot
Since homeowners insurance claims often require rebuilding whatever part of your home succumbed to fire, flooding, or other disaster, most insurance policies factor in the price per square foot to rebuild in your area based on current construction rates. While the national average is $95.51 per square foot, the overall cost of policies can differ drastically.
It’s important for your agent to do a reconstruction cost estimate to ensure “the proper rating for building materials,” says Jason Pesch, owner of a local insurance agency in Scottsdale, AZ. While most policies pay replacement cost (the cost to rebuild a home), some pay only the depreciated current value for the whole house.
Probability of insurance claims in your area
“If your home is located in an area prone to tornadoes or forest fires, you’re going to have a higher premium due to a greater risk of damage,” says insurance expert Michael Senderovich. In other words, the more known risk there is to your home, the stiffer the premium.
For example, the annual cost of insuring a home in Louisiana is $1,722—the nation’s highest due to the claims filed after Hurricane Katrina. (The state with the lowest price: Idaho, averaging just $534.)
Since every standard policy excludes coverage for natural disasters like earthquake and flood, be sure to check with your agent to see if you need the extra coverage. Note that the cost of those add-ons could easily exceed the price of your homeowners policy.
Your credit score, age, and other personal info
You—yes you—also factor into how much you’ll ultimately pay in homeowners insurance. According to Erin Wenzel, account manager at Michigan’s Provision Insurance Group, everything from your credit score, marital status, age, level of education attained, and frequency of claims submitted on prior insurance policies will increase or decrease your rate. (Hint: A higher credit score and few or no claims usually result in a lower rate.)
[Read the full article here]
