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Home insurance rates: how they're set and why they increase

You may notice that your homeowners insurance premiums change when it comes time to renew your policy, and when your rate increases, it’s natural to question why. Several factors affect homeowners insurance rates, whether you filed a claim in the previous policy period or not.

Let’s look at the major reasons why homeowners insurance rates may go up each year.


What factors determine my homeowners insurance rate?

When you apply for homeowners insurance, the insurance company takes several factors into consideration when determining how much it should cost to restore your home in the event of a catastrophe. Aspects of your home such as location, age, security features and safety measures are all evaluated during this process. In addition to the characteristics of your home, your personal background is considered. Your credit score, insurance history, pet ownership and employment status are all important aspects of your insurance profile and in calculating your rate. As your policy ages and circumstances change, premiums may fluctuate.


Common reasons why homeowners rates increase

Home insurance rates are influenced by a number of circumstances. Some are within a policyholder’s control and some are not.

To further understand the actions that affect homeowners insurance rates, let's look at the five major reasons why premiums change each term.

 

Characteristics of the home have changed

Insurance rates are dependent on certain factors of your home: how old it is, its location, inspection status, if you have an attractive nuisance like a swimming pool or trampoline on property, and more. If you have an older home with outdated safety features and structural tools, your insurance company may conclude that in the event of a disaster, it would be more expensive to repair or restore. Often when you have stayed with the same insurance company for years, your insurer may conduct an inspection of vital parts, evaluating the roof, exterior walls and foundation. If one or more of these is deemed in poor condition, your insurer may increase your premium or even request that you upgrade these systems.

 

Age of Home

Average Annual Premium

0 years old - New construction

$965

10 years old

$1,478

20 years old

$1,669

30 years old

$1,694

40 years old

$1,698

50 years old

$1,700

 

You or your neighbors have filed home insurance claims

After you file a claim with your insurance company, it is likely that your rates will increase. If you have filed claims for even minor covered losses to your home, your rates may go up in the next term. Home insurance premiums can also increase based on the claims history of your neighbors or people in your ZIP code. Areas with a high rate of home burglaries or natural disasters mean higher premiums — even if your home hasn’t been directly affected.

ClaimAverage Annual Premium
No claims$1,478
1 Theft claim$1,777
2 Theft claims$2,084
1 Liability claim$1,774
2 Liability claims$2,095
1 Vandalism claim$1,758
2 Vandalism claims$2,039
 

Inclement weather affects your area

If you live in an area with a higher risk of natural disasters or rough weather, insurance costs are likely to be high. Hurricane season, hailstorms, wildfires and other weather catastrophes affect construction costs as supply dwindles and demand increases. Your home’s rebuild cost is a key factor in determining your premium. The price of local construction materials and labor indicates the rebuild cost — if construction costs increase, then so will your premium.

ClaimAverage Annual Premium
Earthquake claim $1,594
Lightning claim $1,622
Fire claim $1,800
Hail claim $1,610
Water claim $1,757
Wind claim $1,612
Other weather claim $1,618
 

Your insurance score went down

Your insurance score measures how likely you are to file claims; insurers calculate this number by considering your risk factors. Your credit score, home safety features and claims history are all elements of your insurance score. Your score is assigned at the time of application and is reevaluated at renewal. If your credit score dipped or you filed a claim and your score is lower than at your last renewal, this might explain a premium increase. 

Credit ScoreAverage Annual Premium
Poor$4,285
Fair$1,976
Average$1,734
Good$1,538
Very Good$1,358
Excellent$1,205
 

Insurance rates increase throughout the industry

As it happens, rates are trending upward throughout the insurance industry. A few things may account for this: it may be purely profit-motivated or due to the increasing number of claims filed across homeowners insurance companies in recent years. The increase in claims is likely due to more frequent unusual weather patterns, like winter storms, wildfires or hurricane activity in areas that are not equipped to protect themselves.

YearAverage Annual Premium
2019$1,351
2020$1,407

What can I do if my home insurance rates go up?

The best place to start is to speak to your insurance agent to understand why exactly your premium increased. They also may be able to suggest paths you may take for lower rates. Rate increases may not always be within your control, but there are ways to bring your premium back down that you can explore. Common methods for lowering your premiums include the following:

How to lower your homeowners insurance premiums in 4 steps

  1. Reevaluate your discount opportunities — You may qualify for discounts that might not have been applicable at the start of your homeowners insurance policy. Common discounts include multi-policy or bundling, safety device, senior discount and loyalty discounts. 
  2. Increase your deductibles — Higher deductibles mean lower premiums in the world of insurance. You only pay your deductible when you file a claim, so if you have a clean claims history this may be a good option for you.
  3. Modernize your home — Adding updated safety and security features, winterizing your electrical and plumbing systems, and remodeling your home are just a few of the ways you could save money on your insurance. This option may further qualify you for discounts in addition to decreasing your premium due to your home’s new layers of protection.
  4. Shop around for a new provider — It’s never a bad idea to reevaluate your insurance policy and see what other offers are out there. You may qualify for programs or discounts from another carrier that your current one does not provide. Get a new insurance quote from several providers to compare your options.

While much of the time insurance rates go up simply because of industry averages, there are several other reasons why homeowners insurance premiums increase yearly. Remember to read your policy documents upon renewal and talk to your insurance agent to inquire about ways to save.

Weigh your options and get the best value from your next insurance policy.

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Renata Balasco
Renata BalascoAssociate Content Strategist

Renata is a licensed insurance professional and content strategist responsible for creating home and auto insurance guides for The Zebra.

Renata's background in technical writing and her experience working in the insurance industry informs her work. She holds a bachelor’s degree in communications.

About The Zebra

The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.

  • The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.

  • The Zebra’s insurance content is not subject to review or alteration by insurance companies or partners.

  • The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.

  • The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.