The Federal Reserve Board explains that homeowners insurance protects the homeowner when serious damage occurs from such events as fire, flood or vandalism. It also protects the lender by allowing homeowners to pay off their mortgage even if their house is destroyed. According to the Insurance Information Institute, homeowners insurance policy premiums in 2009 ranged from $491 to $1,534. The variation in cost is due to various state regulations about coverage requirements and property and environmental conditions.
The cost of homeowner insurance can vary significantly depending on what is covered. Insurance companies offer basic policies covering certain types of events, but some mortgage lenders may require additional coverage. For example, in California, earthquake damage often is not included on basic policies because much of the state is considered at high risk for earthquakes. However, some California mortgage lenders may require you to carry earthquake insurance -- a requirement that increases your homeowner's insurance costs.
According to the Federal Citizen Information Center, you can often lower your premiums by as much as 25 percent by agreeing to a higher deductible on your homeowner's insurance policy. The deductible is the amount of money you have to pay out-of-pocket before the insurance company pays on a claim. If the standard deductible is $500, you may be able to reduce your premiums by going to a $1,000 deductible. However, your insurance policy may have separate deductibles for specific damages. For example, if you live in an area prone to flooding, you may have a separate flood deductible on your policy.
The cost of rebuilding your home also affects the cost of your premium. The rebuilding, or replacement, cost is not the same as the purchase price. This is because the cost of the land is not factored into the rebuilding cost. Premiums also tend to be lower for houses made of brick or masonry than houses made of wood. Owners of homes that are newer or close to a fire station may also pay lower premiums. Similarly, if you have a pool or a wood-burning fireplace, you may have to pay more, while having a security system or fire sprinklers may save you money.
Effects of Weather
According to data by the National Association of Insurance Commissioners (NAIC), Texas and Florida are consistently the most expensive states for homeowner's insurance. One reason is that both states tend to have a lot of natural events, and are prone to floods, hurricanes, high winds, hailstorms, tornadoes and other severe weather conditions. The NAIC argues that insurance costs tend to be higher in states that are frequently hit with moderate weather events than in states that are occasionally hit with severe events. For example, rates in California tend to be lower than those in Florida because earthquakes -- although they cause a lot of damage -- are much rarer than the severe storms and hurricanes that regularly pummel the Florida coast.
- MSN Money: The costliest places to insure a home
- This Old House: Homeowners Insurance 101
- Insurance Information Institute: Homeowner&#039;s Insurance
- Federal Reserve Board: Consumer&#039;s Guide to Mortgage Settlement Costs
- National Association of Insurance Commissioners: A Consumer&#039;s Guide to Home Insurance
- Federal Citizen Information Center : 12 Ways to Lower Your Homeowners Insurance Costs
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