What factors do insurers use to determine your homeowners insurance rates?
Home insurance companies use information about your home, where you live, and your own background to determine how much you will pay in annual premiums. Underwriters at your insurance company will consider these factors when putting your policy together. If you are curious about your homeowners insurance rates, have a look at the guide below to learn more about some of the individual rating factors or visit our in-depth guide to average homeowners insurance rates.
The policy type that you choose greatly informs the rates that you will pay. A more robust open-peril policy — like an HO-5 policy form — will likely set you back more than a bare-bones policy that only covers the most basic perils.
Below are the common policy forms offered by most homeowners insurance companies:
| Home policy types | Other policy types |
|---|---|
The amount of coverage that you need is directly tied to a number of factors, including how much it costs to rebuild your home, the value of your personal belongings and the amount of liability coverage that you need. Have a look at the coverage types that come standard in most home policies and how they can affect your insurance rates.
While the cost to rebuild your home is a very important determinant of your insurance premiums, insurers consider a number of other factors, including the style of the home and its condition. Review potential rating factors below.
While the actual age of your home isn't a rating factor, insurers can rate you on the age of your home's plumbing, electric or HVAC systems. Older home systems tend to have more issues than newer ones. This can make them more expensive to insure, as things like out-of-date plumbing or wiring can wreak havoc on your home. For these reasons, insurance companies tend to favor newer homes or homes that have been recently updated.
If your home is constructed of expensive or otherwise hard-to-find building materials, you can expect the cost to replace the house to be reflected in your home insurance premiums. This is especially apparent in older craftsman-style homes where many of the features are handcrafted or one-of-a-kind. The cost to repair or replace these features is often prohibitively expensive in today’s marketplace.
The neighborhood that you live in can have an impact on your premiums. If your neighborhood suffers from frequent property crime, this can drive up your rates. Improving your home security with fencing, deadbolts and security systems can work toward reducing this amount.
Your roof takes a beating from the elements. Over time, exposure to sun and harsh weather conditions can weaken it, increasing the chance for leaks. If your insurance company sees your older or worn-down roof as a risk, that will be reflected in what you pay for home insurance. Learn more on how roof type affects your rate.
Some of the things that make your home more enjoyable to you can also increase your insurance costs. Swimming pools, trampolines or certain yard features can increase the likelihood of unwanted guests sneaking onto your property and potentially injuring themselves, putting you at risk for liability claims. Having these "attractive nuisances" will almost certainly lead to higher insurance costs.
The deductible is the amount of money that you are responsible for before the insurance company will cover a claim. A higher deductible can lead to lower insurance premiums, as you are assuming a greater portion of the risk.
If your home is in an area prone to natural disasters such as hurricanes, earthquakes or wildfires, you will likely face higher insurance premiums. Keep in mind that standard insurance policies don’t often safeguard against perils like flooding, so it’s crucial to make sure that your insurance coverage is sufficient to protect your home. You may need to seek out a separate earthquake or flood insurance policy to be properly covered.
How close your home is to a fire station or even a fire hydrant can greatly impact how much you pay for homeowners insurance. Those who live in more remote areas or greater distances from the nearest fire department will likely see higher premiums. Also, installing further measures for fire protection such as a sprinkler system or smoke detectors might help to bring down these costs.
Finally, insurance companies look closely at your own background when determining your rates. Whether you are a long-time homeowner or are just taking your first steps toward buying a home, it’s important to know how your personal profile is seen by insurance companies:
A homeowner with a long history of making claims is less attractive to most homeowners insurance companies. To safeguard against risk, they will likely increase your premiums if you have made a number of recent claims. Learn more about how much your rate can increase after a claim.
Credit history has long been used by the insurance industry as a rating factor. Oftentimes, studies have shown that those with a higher credit score are less likely to file a claim than those with a poorer credit rating. However, some states may not allow the use of your credit score when putting together your rates.
Certain dog breeds — deemed "aggressive breeds" — may sound alarm bells for insurance companies, especially those with a bite history. Because your personal liability coverage usually covers dog-bites, insurers are less likely to want to insure you (or may upcharge you) if you own a dog assumed to be dangerous.
Another factor that can impact how much you pay for car insurance is your job status. For instance, if you are a veteran or on active duty, you may be eligible for special discounts or rates from insurance companies that cater specifically to the military. Furthermore, those who are retired can expect to pay a lower rate than someone who is currently employed. This is because retirees tend to be at home more often, lowering the chance of an incident like theft. Check with your insurance agent to see if your insurer offers job-specific savings.
While some rating factors are outside of your control, having a clearer understanding of how your insurer sets your rates can be helpful when shopping for a homeowners insurance policy. Every insurance company has its own underwriting policy and may weigh certain factors differently. This is why it’s always a good idea to get a number of home insurance quotes so that you can compare prices. The Zebra can help you compare free quotes from a number of top insurance companies.
