After weeks of searching through listings and back and forth with agents, you’ve finally set a price for your dream home. You have almost reached the finish line! The next step is to protect your investment with homeowners insurance.
But how much coverage should you get? Homeowners insurance costs can be difficult to estimate because they depend on many different factors. Just enter your zip code in the box provided below to easily compare homeowner insurance quotes and find the best homeowner insurance coverage for your new home.
Factors Affecting Home Owners Insurance Prices
Homeowners insurance rates are determined by various factors such as the location of your home, the condition of the home, the amount covered, your credit history, and several other things.
While insurance companies provide the same standard types of coverage, rates will vary from company to company. Every insurance company has its own magic recipe on how to calculate homeowners insurance premiums.
Here are some important criteria that insurance companies use to set your rates…
The area you live in will have a big impact on what you pay for. States that are prone to natural disasters such as Kansas, Texas, and Oklahoma naturally have higher average home insurance costs than Pennsylvania or New Hampshire.
Other risk factors that can increase the cost of homeowners insurance include proximity to the beach, living in a fire-prone area, and a high crime rate. If you live close to a fire station or in a neighborhood with a low crime rate, you can expect to pay less.
The way the house is built also affects how much you will pay. A house built with a non-combustible material such as concrete will be less expensive to insure than a house of the same value made with a combustible material such as wood.
Your Age and Home Condition
Generally, it is cheaper to insure newer homes than older homes because they require fewer repairs and upgrades. Likewise, a house in bad condition will come at a higher price than a house in good condition.
Homeowners Insurance Coverage
This will depend on how much protection you want. You will want enough to:
- Rebuild your house if it is destroyed.
- Change your stuff.
- Cover any damage or injury that occurs on or off your property.
- Pay additional living expenses if you evacuate.
You can get more or less coverage depending on the price of the asset you wish to insure.
Risk Exposure to Your Property
Security features like cameras, strong locks on doors, safety features like fire alarms and smoke detectors will help lower your home insurance costs. However, if you have a hazard such as a swimming pool or trampoline on your property, it will increase the cost of your homeowner’s insurance.
If you have no history of past homeowners insurance claims, you may pay a lower rate.
Insurance companies reward good credit at a lower rate. Some states such as California do not allow insurance companies to use credit scores when determining how to calculate homeowners insurance rates.
How Much Coverage Is Enough?
One of the biggest risks of buying homeowners insurance is being insured. If a tree falls in your home and you reach your home insurance coverage limit or you don’t have enough insurance to cover rebuilding costs, you will be forced to look for other solutions. It’s a nightmare, but it happens too often. According to consumer reports by CoreLogic, 60% of all US homes are uninsured.
Another problem is buying too much insurance. Some homeowners maintain the same policy for decades when they can switch to other companies that offer better options.
You will need a solid estimate of your assets to choose an adequate limit for home insurance coverage. To make sure that you get an accurate estimate, you need to know things like:
- Costs to rebuild your home based on today’s labor and construction prices
- Value of your personal belongings (excluding vehicles)
- Value of your combined assets
How to Estimate Your Home’s Replacement Costs
Residential coverage is designed to pay to completely rebuild your home if it is destroyed by an imminent hazard such as a fire or hurricane. Here’s a quick formula you can use to get an estimate of how much money it will take to rebuild your home.
Area of the house x price per square foot to build in your neighborhood replacement cost
Do an online search or contact a local builder to find the price per square foot (psf). Take the psf and multiply it by the square footage of your house to get the replacement cost.
This is a rough estimate that you can use to determine the average cost of your home insurance. Other factors that determine replacement costs include building materials, number of rooms, renovations, and features of your home.
How to Estimate the Cost of Your Goods
Most insurance companies will limit personal property coverage to between 50% and 75% percent of your residential coverage. For example, if you have occupancy coverage of up to $200,000, you will have approximately $140,000 in personal property coverage.
You’ll want enough coverage to cover the value of your personal items such as clothing, furniture, electronics, and jewelry.
Here are some tips on how to calculate home insurance and get enough coverage for your personal property:
- Make an inventory – make a detailed list of all the possessions you want to protect. Take pictures and/or record videos of each item. Keep a list of everything in a spreadsheet along with any identifying information about the item (model number, price, etc.). Collect receipts as well and save them for storage. You can send your inventory list to the insurance company to document proof of your goods. This will help speed up the claim process at a later date and make it easier to estimate how much insurance you will need.
- Consider increasing the homeowner’s insurance coverage limit for certain items – Valuables such as jewelry, collectibles or expensive electronic equipment may exceed the policy limit. You may want to add additional scopes to get coverage for this item.
How to Estimate Asset Value
If someone sues you, what are the risks? To find out, you need to estimate the value of your assets. Personal liability coverage protects you from losses resulting from bodily injury and property damage. This type of insurance is both off-site and onsite, meaning you are covered whether an accident occurs on or off your property.
Say you are painting your kitchen floor, and it is so glossy that you can see your reflection. Before you even have time to admire your work, your neighbor stops by for a chat and walks into the kitchen. He slipped and broke his hip. If he sues, you can be held accountable for his injuries. Personal liability coverage is there to help you cover the legal, judgment and settlement costs associated with the injury.
Personal responsibility also extends beyond your home. If you accidentally return to someone else’s mailbox while you are performing an errand, your assets will be protected against costs associated with property damage you cause.
The Most Common Types of Home Owner Insurance
All insurance companies offer the same standard policy types with slight variations in coverage. The 5 most common forms of homeowner insurance are:
Residential Insurance – rebuild the physical structure of your home (including all structures on your property). Covered hazards include fire, falling objects, vandalism, explosions and water damage.
Personal Property Insurance – help pay for the loss or damage to your personal belongings such as clothing, electronics and furniture. This type of insurance works anywhere in the world, so if someone stole your laptop while you were at a coffee shop, it would be covered.
Personal Liability Insurance – protects you from financial loss due to bodily injury or property damage. This includes costs associated with bodily damage or injury incurred on or off your property.
Medical Payment Insurance – help cover the costs of injuries to others that occur on your property. This type of liability insurance will cover medical bills regardless of who is at fault.
Additional Living Cost (ALE) – pay for additional living expenses arising from damage or loss. ALE is very helpful to families who are displaced from their homes and have nowhere to go. If the condition of your house is not livable, ALE will cover additional living costs such as food and housing.
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