What Factors Impact the Cost of a Home Insurance Policy?

Feb 20, 2020 | Personal Insurance

Most the first-time-home-buyers think that the cheaper the insurance, the better.  Well, who doesn’t want to save some money right? But when it comes to insurance, cheaper is not always better. Most industry experts say that the common mistake homeowners do is under-insuring their homes.

According to Nationwide Review in October 2019, about two-thirds of American homes are underinsured. That’s an average of 20%. They always tend to buy just enough insurance to cover the mortgage which is just around 80-90% of the value of the house depending on the down-payment.

The average amount of home insurance is $100,000 but experts suggest that it’s better for homeowners to insure their home for at least $300,000 -$500,000 or higher if you can.  Because the rule is very basic. The cheaper the amount of insurance, the less the coverage.

Sounds like a lot of money already?

Not to worry, many homeowners just get the standard insurance at first, but keep on adding additional policies when they get the chance or simply just have extra money to do so. Just make sure to shop around and talk to an insurance agent about everything that you want to be included in your policies to get the right quote. After you get the amount, that’s the time you ask your insurance agent if there’s any discount available. 

Having said all that,  then the question is: What are the factors that can affect the cost of your home insurance?

Though the amount of insurance always depends on your State or location.  Mostly, standard insurance is $35 for every $100,000 of home value. Standard insurance policies mostly include coverage of these categories Dwelling, Personal Property, and Personal Liability. And the homeowners are the ones who will decide how much coverage they want in each category.


It covers all the qualified damages In your house. A standard insurance policy doesn’t cover all damages.  Therefore, your house can be repaired or rebuilt if the reason for the damage is from fire or drastic wind which is covered by standard insurance. 

Personal Property

once a qualifying event is damaged your personal belongings like appliances,  furniture, artworks, and jewelry will be replaced. 

Personal Liability

Its coverage protects the homeowner against lawsuits for injury or property damage.  For instance, a neighbor got hurt due to a falling tree from your backyard.  

This is the estimated amount of money needed to replace or rebuild your home the same as before. So think about all the materials that were used in your house.  Make a calculation on how much will it be if you buy those things/materials today. But remember, the market value of your house is different, you just need to rebuild the house, not including the land. 

Types of Coverage 

There are different kinds of homeowners’ insurance in the United States. They are designated HO-1 to HO-8 and other levels of protection depending on the homeowner’s needs and the covered residence.

Levels of Coverage

  • The Actual Cash Value- or sum-insured total.  Like what I have explained earlier, it’s the maximum amount of money needed to rebuild your house the same as before.  Using the same material and with the same content.
  • Guaranteed or Extended  Replacement Cost- it acts as inflation-buffer,  this policy pays not just the amount you insure your house to be built as before, but even much. It means that when the rebuilding of your house is more than the amount you pay to insure the house, this feature will provide more than your policy limit. 

    But of course, there is a ceiling. Usually, it’s just up to 25% higher than your policy limit. Some insurers offer an extended replacement but not all. However, experts advised that this policy must be included in your insurance if you are planning to stay in your house for a long time.
  • Replacement Cost- is the actual cash value of your house and its contents. This is to protect the homeowners for the deductions due to depreciation. By this,  the homeowners will be able to rebuild or repair their house to its original value.


It is the amount that you need to pay for a loss before your insurance company pays a claim. The higher your deductibles, the more money you can save on your premiums.  That is why choosing the right deductibles is vital. Most insurers recommend that deductibles should be at least $500.

However, this may vary depending on your location. Yes,  the location always has a great impact on your insurance. There are of course different rates per state.

In addition, other factors that affect your deductible rate are natural disaster-prone are, if you live in these kinds of the area then you may have a separate deductible. For example: If you live near the East Coast, you may have a separate deductible for windstorms.  Same thing with areas prone to earthquakes, hail, and tornadoes.


Yes, it’s best that your pet is covered too.  We all know that being bitten by a dog is almost a common thing and we don’t certainly want to get sued for that right?  But, some insurers don’t want to insure homeowners who have certain breeds of dogs that are considered aggressive and dangerous like Rottweiler and Pitbull.

However,  some insurers accept whichever breed the dog is as long as they pass the qualifications. They may cover your pet if the dog has enough training or attended some dog classes to exercise good behavior.

The insurer may ask you as well about your pet’s history if they can be restrained with a muzzle, or chain, or can be left out in a cage.  This will help the insurance company decide if your pet can be insured.

If you think you have an aggressive pet, you might need to shop around first. There is a policy called “aggressive breed “ but the home insurance rate for aggressive breed normally is just about 3% so it’s still up to you if you want to insure them or not.


Renovation is made from time to time. Whether an upgrade of the bathtub, repainting the whole house, or changing your old carpets to vinyl tiles. Any upgrade that you made can raise your home’s value.

Remember, the cost of materials long years ago while building your house is far different from the amount you pay for the renovations now. That’s why updating your insurance agent is a must. Yes, it may increase your premium but what’s important is that your coverage will be up to date. You need to make sure that whatever happens your house will not be under-insured in case it needs to be rebuilt again.

Insurance score

An insurance score is almost the same as your credit score. It can affect your premiums and as well your ability to secure a policy.  Insurers are just running their business and risking with people with low scores is not a good thing for them.

So to make sure that you can get a good score try to do these things: Pay your credit card bills on time and in full. Be careful not to have any tax offenses and avoid having debt.  

Age and construction of your home

Your house’s age has a big factor in your insurance rate. Even the materials that were used to build the house like what kind of cement,  tiles, and wood. What is the quality or prestigious, the period of construction, is it Victorian, Federation, or Contemporary, the size and features of the house can all affect the cost to rebuild again your house and of course the total coverage that you need. 

All about water

Flood damages are not usually covered by a standard insurance policy. So if you are living in a flood-prone area,  having separate flood insurance added to your policy is a must.

However, as per the Insurance Information Institute, 25% of most insurance claims are from homeowners whose houses are not even in flood-prone areas. Being said, having additional flood insurance in your policy is your best option no matter what.  

Credit History 

Credit history always has a great impact on adult life. That’s why keeping your credit history as flawless as possible is a must if you want to avoid any hindrance in the future. Each insurance companies have its own credit formula.

In all states except Maryland, Massachusetts, and California, insurance companies can use credit history when creating home insurance rates. So if you want to make sure that you can have a good score, start paying your credit bills in full and on time.

Ask Us

For any questions or suggestions, AIS is here to hear from you! Contact us and we’ll definitely get back to you immediately. 

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