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 only sometimes better. Most industry experts say that homeowners’ common mistake is under-insuring their homes.

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

The average amount of home insurance is $100,000, but experts suggest that homeowners should insure their home for at least $300,000 -$500,000 or higher if they can because the rule is fundamental. The cheaper the amount of insurance, the less coverage.

Sounds like a lot of money already?

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Not to worry, many homeowners get the standard insurance at first but keep adding additional policies when they can or have extra money. make sure to shop around and talk to an insurance agent about everything you want to include in your policies to get the correct quote. After you get the amount, that’s the time you ask your insurance agent if there’s any discount available. 

What factors 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 primarily 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 home can be repaired or rebuilt if the reason for the damage is from fire or fierce wind, which is covered by standard insurance. 

Personal Property

Once a qualifying event damages your home, the policy covers personal belongings like appliances, furniture, artwork, 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.  

It 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. Calculate how much it will cost to buy those things/materials today. But remember, the market value of your home is different. You need to rebuild the house, not including the land. 

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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

It is also called the sum-insured total. As 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 an inflation buffer. This policy pays not just the amount you insure your house to be built as before, but even more. It means that when your home is rebuilt, 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 you must include this policy in your insurance if you plan to stay in your house for a long time.

Replacement Cost

Homeowners insurance protects your most precious assets, including your home and its contents. A critical aspect of this coverage is the actual cash value, which ensures you are not subject to deductions due to depreciation. If you need to rebuild or repair your home, you can do so at its original value. With homeowners insurance, you can have peace of mind knowing that your investment is protected.

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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 area always has a significant 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. If you live in these kinds of areas, then you may have a separate deductible. For example: If you live near the East Coast, you may have a separate windstorm deductible. Same thing with areas prone to earthquakes, hail, and tornadoes.


Yes, your pet should be 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 with certain breeds of dogs considered aggressive and dangerous, like Rottweilers and Pitbulls.

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 has attended some dog classes to exercise good behavior.

The insurer may also ask about your pet’s history and whether it can be restrained with a muzzle or chain or left out in a cage. It will help the insurance company decide if you want to insure your pet.

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

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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 make 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 renovations. 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. It would help if you made sure that whatever happens, your house will not be underinsured if 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 your ability to secure a policy. Insurers are just running their business, and risking people with low scores is unsuitable.

To ensure 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 significant factor in your insurance rate. Even the materials used to build the house, like cement, tiles, and wood. What is the quality or the period of construction? Is it Victorian, Federation, or Contemporary? The size and features of the house can all affect the cost of rebuilding your home again and, of course, the total coverage you need. 

Don’t wait until it’s too late – get your insurance quote today!

All about water

A standard insurance policy does not usually cover flood damages. So if you live in a flood-prone area, adding separate flood insurance 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. Having additional flood insurance in your policy is your best option, no matter what.  

Credit History 

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

Insurance companies in all states except Maryland, Massachusetts, and California can use credit history when creating home insurance rates. So, to ensure a good score, start paying your credit bills in full and on time.

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