Buying a home is probably the biggest investment you’ll ever make in your lifetime. In addition to a mortgage consuming a large chunk of your budget, you’ll also have to pay for furnishings and property taxes. Another cost is homeowners’ insurance. However, home insurance is imperative as it provides you with a sense of security. So how much is house insurance? There’s no simple answer due to the amount of information that goes into a quote. However, here are six factors that can influence how much you’ll have to pay for a policy, along with the basic types of home insurance.
1. The Amount of Dwelling Coverage You’ll Purchase
Although there are many factors that can affect how much you’ll pay for a home insurance rate, the biggest one is how much dwelling coverage you’ll buy. When considering the amount of dwelling coverage that you’ll need, it’s best to purchase enough that can cover your home’s replacement cost. In other words, dwelling coverage is how much it will cost to rebuild your home, including a garage or another type of attached structure. Of course, the more dwelling coverage you buy, the higher your insurance rates will be for your homeowners’ policy.
2. Personal Liability Coverage Limit
Another factor influencing the cost of home insurance is the limit of your personal liability coverage. The personal liability part of your homeowners’ policy covers the expenses for defending you when facing a lawsuit. It also covers any judgments that result from a lawsuit, up to the limits of a policy. Consider that the more personal liability coverage you buy, the more you’ll be paying for your annual premium.
3. The Amount You Choose for a Deductible
Your deductible is how much you’ll be responsible for paying out of pocket toward damages before your insurance company pays for your claim. The higher your deductible, the lower the premium will be. But your insurer will be giving you less money when you’re making a claim. On the other hand, a lower deductible means you’ll get more money for a claim but will have to pay a higher annual premium.
4. The Type of Construction
The construction of your home, such as its framing, can be a significant factor, regarding home insurance rates. For example, a home with brick framing usually involves the cheapest rates, while wood or log framing results in having to pay the highest rates. A home with a wood construction is not only a fire hazard, but it’s also more vulnerable to termites and other pests.
5. Your Home’s Age
The age of your home is another main factor influencing home insurance rates. The older your home is, the more it becomes more likely it is to be damaged from inclement weather as well as other elements. Also, consider that replacement costs for materials and labor increase over time.
6. The Location of Your Home
Where your home is located can affect the cost of a policy. For example, homes close to rivers and other large bodies of water mean paying more for a policy. Furthermore, if your home is near an airport, your policy can be more since it’s more likely it could be damaged from falling debris. Your neighborhood’s crime rate is another factor influencing cost.
Basic Types of Home Insurance
- HO-1 is a bare-bones insurance policy that covers hazard insurance for several “named perils” and includes liability insurance. In several states, it’s been discontinued.
- HO-2 covers an owner’s home and other structures on the property, such as furniture, clothing, books and other items. It also includes liability and covers a larger list of “named perils” than what’s included under the HO-1.
- HO-3 is the policy that most people use today. It offers the same coverage as an HO-2 policy as well as provides home protection against damages that are not specifically excluded.
- A replacement value policy covers expenses for repairing or replacing a home or personal possessions, without regarding a home’s original purchase price or cash value.
- A cash value policy pays an owner for the original purchase price for whatever has been damaged.
Other Considerations and Warnings
- Consider if it would be hard to repair or replace your home. Often, insurance companies have some type of tool that can offer an estimate on what it would cost to rebuild a home.
- If you have a dog breed that’s considered aggressive, your home insurance coverage may be limited, or there may be no coverage at all. In fact, 50 percent of all dog bites happen on the premises of an owner and make up about one-third of all liability claims for homeowners’ insurance.
- A backyard pool can result in an increase in your insurance premiums because you can be liable for injuries. For better pool security, install self-locking gates and have safety equipment that’s accessible.
- The claim history of a home can be a factor an insurance company considers, regarding insurance premiums. Thus, a home with more payouts can mean having to pay a higher premium.
When deciding on home insurance, it’s critical that you examine all the factors affecting the cost of a policy and the type of coverage you’ll need so that you can make a wise choice. You can trust ICUSA to help you make the best decision. Please contact us for a free quote.