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How Much Does Home Insurance Cost? Advice To Find the Best Price

October 20, 2020

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If you’re buying a home, you probably know that paying for the property isn’t the only expense you’ll incur. Among other things, you’ll also want to buy home insurance to protect this valuable asset in the event of unforeseen problems, from damaging hailstorms to theft and beyond.

So how much does home insurance cost? In this second installment of our Home Buyer’s Guide to Home Insurance, we’ll walk you through what you should know about home insurance rates, and how to find the best plan and price.

How much does home insurance cost?

The average annual homeowners insurance premium runs about $1,445. However, it can be much higher or lower based on numerous factors. Here’s a full rundown of what can affect homeowners insurance costs.

  • Condition of your home: This plays a big role in your homeowners insurance rate, and can include everything from the roof to the pipes, heating system, electrical wiring, and age. Your insurer may ask you to provide detailed information about your home; it may also gather information from public records and documents filed with your city and county.
  • Price to rebuild: Another big factor is the price per square foot to rebuild in your area, based on current construction rates. For reference, the national average is between $100 to $200 per square foot. Why does this matter? Because if your house is damaged or completely destroyed and you need to rebuild, your insurer will be footing the bill.
  • Natural disasters in your area: The cost of your homeowners insurance also depends heavily on the likelihood of destructive natural disasters or other incidents. In other words, the more known risk there is to your home, the stiffer the homeowners insurance premium. Homeowners in Oklahoma, where tornadoes wreak havoc every summer, pay an average of $2,559 for home insurance each year, the highest in the nation. Texas is not far behind, at $2,451 per year, thanks to its destructive hurricanes and thunderstorms.
  • Personal information: Your credit score, age, and other personal factors also play a role in your home insurance costs. A higher credit score and few or no insurance claims usually result in a lower rate for home insurance. Generally speaking, the older you are, the lower your premiums. Why? Because older people are less risky for insurers to cover—they tend to spend more time at home, particularly if they’re retired, which means they’ll catch a house fire before it gets out of control.
  • High-risk features: Your homeowners insurance company will also factor in high-risk home features, including swimming pools, trampolines, and even your dog. (Certain breeds have a reputation for being more aggressive, which could lead to expensive insurance claims if your dog bites someone.) Similarly, adding safety features such as a home security system or fire sprinklers can help lower your home insurance rates.

How to find the best price on home insurance

To determine how much you’ll pay for home insurance, contact a few insurance companies by calling to chat with an agent or by filling out a form on their website. After you share some information about you and your home, they’ll run this information through their own algorithms to come up with a quote on how much your insurance will cost.

But here’s the thing: Since each insurance company uses its own formulas to determine a property’s risk levels, each may offer different rates. To get the best price and policy, it pays to shop around.

“You won’t know your homeowners insurance cost until you get quotes,” says Amy Danise, chief insurance analyst at Forbes Advisor. “Quotes are free. And it’s best to get quotes from multiple companies so that you can get a sense of what a good rate will be.”

Many homeowners go with the first homeowners insurance policy quote they get in order to cross one more thing off their list during a move or the home-purchasing process. And that could be a big, costly mistake because you may pay more. But the cheapest home insurance option isn’t always the best, either.

“An informed insurance agent that can shop your home with multiple insurance carriers is your best bet at finding a great rate for your home,” says Erin Wenzel, account manager at Michigan’s Provision Insurance Group.

Ask the agent to explain why the homeowners insurance premiums are different and what the trade-offs are in liability coverage and deductibles. And this isn’t just something you should do when you first buy a home. Every year, you should review your homeowners insurance, including your liability coverage, premium, and deductible.

“Make an effort to get a new quote each year, and shop around if you’re not happy with your current rate,” says Wes Taft, co-founder of moveCHECK.

Homeowners insurance companies hungry for new business offer competitive rates on premiums.

Is homeowners insurance included in the mortgage?

In many cases, homeowners insurance will be part of your monthly mortgage payment. Why? Because your mortgage lender wants to make sure your important house-related bills get paid on time and in full.

As such, you’ll have to pay your lender your monthly home insurance premium along with your mortgage. From there, your lender will keep that insurance money in a special account, called an escrow account, and will pay your insurance bills for you when they come due.

Lenders will often show you a breakdown on their statements of how much of your payment is going to your mortgage (principal and interest) as well as what’s going toward homeowners insurance and any other fees (such as property taxes or homeowners association dues).

In certain situations, you can pay your home insurance company directly, without having to send this money to your lender first, but this isn’t common. Some lenders may offer some flexibility, such as if you made a 20% (or higher) down payment—it just depends on the lender. Also, if you paid for your house in cash or you’ve paid off your mortgage in full, then you’ll need to pay your insurance company directly.

Is homeowners insurance tax-deductible?

No, the money you spend on home insurance is not tax-deductible. The one exception is if it’s for a rental property, in which case home insurance can get deducted from your taxable income.

In addition to shopping around for the best price on insurance, you should make sure you get the right amount and type. That’s what we’ll explore in our next installment: How much insurance do you need?

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Is Home Insurance Required When You Buy a House?

October 13, 2020

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If you’re buying a home, one question you might wonder is this: Is home insurance required when you own a house?

In many cases, homeowners insurance is indeed mandatory—and even in cases where it isn’t absolutely necessary, it’s still a good idea. To help you understand why, we’ve put together this Home Buyer’s Guide to Home Insurance, which will help walk you through what you need to know from beginning to end.

In this first article, we’ll introduce you to what homeowners insurance is, why it’s often essential, and what can go wrong if you don’t have it.

What is homeowners insurance?

With home insurance, as with other types of coverage (including health insurance), you pay a relatively small amount of money either monthly or annually in exchange for the promise that your provider will help you pay for unexpected costs you might incur as a homeowner.

What can go wrong? So much, including natural disasters, fires, crimes, accidents, and other emergencies, many of which can be expensive to fix. Without home insurance, you run the risk of getting stuck with a bill that could be in the tens of thousands of dollars. Home insurance offers protection and peace of mind that you won’t get hit with expenses that might be hard to pay on your own.

Why you need home insurance with a mortgage

If you need a mortgage on your home, most lenders will require you to get home insurance before they approve your loan and close the deal.

The reason: By loaning you money for the house, lenders are also investing in your property. If this investment suddenly plummets in value—since, say, a tornado turned it into a pile of rubble—it’s in your lender’s interests for you to have a home insurance plan that will rebuild and restore what you (and your lender) have lost.

“Homeowners insurance is typically required by a mortgage company,” says Brian Rubenstein, senior director for Ally Home. “A lender wants to protect the financial investment they made in your home.”

When to get homeowners insurance

At closing, most mortgage lenders will need you to show proof that you have an insurance policy already in place—even though you don’t officially own the home yet! This proof is known as an insurance binder, and serves as a temporary agreement between you and the insurance company that becomes permanent once you officially close on the home.

In fact, most lenders will want to see an insurance binder at least a few days before closing. As such, you’ll want to start shopping for insurance a few weeks before your closing date, so you have time to compare policies and find the right insurance company for you.

Do you need homeowners insurance without a mortgage?

Now, what if you don’t have a mortgage? Technically speaking, no, you’re not required to have homeowners insurance. But then the question becomes “Should you pay for home insurance?” The answer is still a resounding yes.

“Even if you don’t have a mortgage, home insurance protects the investment you’ve made in your house,” says Amy Danise, chief insurance analyst at Forbes Advisor.

“Think of the worst-case scenario, because that’s really what insurance is for: If your house burned down or was destroyed by a tornado, would you suffer financially?”

Reasons to get home insurance: What home insurance covers

If you don’t have homeowners insurance, you could be in for a rude awakening if disaster strikes and you need to pay engineers, contractors, electricians, masons, painters, roofers, and other highly specialized (read: expensive) professionals to repair the damage to your house.

According to the Insurance Information Institute, about 1 in 20 insured homes will file a claim each year. Meanwhile, data from the Insurance Research Council finds that, on average, insurance companies pay out about $8,787 per claim to help defray homeowners’ costs. Below are some of the most common and expensive insurance claims homeowners experience.

  • Wind and hail: Wind and hail damage is the most frequent reason why homeowners file insurance claims. Every year, 1 in 40 insured homeowners files claims related to wind and hail, with claims paying out an average of $11,200.
  • House fire or lightning strikes: Every year, about 1 in 350 insured homeowners files claims due to fire or lightning. These accidents are also among the most costly to repair, with claim payments averaging $11,971. Furthermore, lightning strikes are becoming more expensive. Why? Because our homes are rigged with an increasing number of electronic systems like smart home technologies, which can go haywire when struck by lightning.
  • Water damage or freezing water: About 1 in 50 insured homeowners files a property damage claim caused by water damage (like a leaky roof) or freezing water (burst pipes) each year. The claim payments average $10,849.
  • Theft: About 1 in 400 insured homeowners files claims due to theft every year, with claims paying an average of $4,391.
  • Personal injuries damage: In addition to covering your home and belongings, home insurance often includes liability coverage. This means that if a visitor gets hurt on your property, her medical bills should be covered by your home insurance company. About 1 in 900 insured homeowners files claims related to bodily injury every year. This injury could happen inside your home or, in some cases, elsewhere. For instance, if your dog bites someone on your property or even on the street or down the block, that is typically covered by your home insurance. The reason: Although we all know that dogs are members of our family, pets are considered property in legal terms. As such, any damage they inflict on others is often covered by insurance, wherever the incident happens. And good thing, too, since the average claim to cover the injured party’s medical bills hovers around $45,000.

All that said, what exactly is covered under a home insurance policy—and what you’ll pay for it—varies by provider. As such, it’s important to shop around and understand your options.

So how much does home insurance cost, and how much do you need? We’ll cover that in future installments of this guide. Stay tuned!

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