Buying homeowners insurance isn’t optional—it’s necessary, and it’s not always cheap.
According to the National Association of Insurance Commissioners (NAIC), home insurance rates have increased more than 40% in the last 12 years. Depending on where you live, basic home insurance policies can range from $781 to $3,383 per year.
Also, because the coverage options are as diverse as the people who need it, the cost of homeowners insurance can fluctuate wildly. There are also many factors that can impact the cost of home insurance that go beyond what’s included in your coverage, such as your zip code and the condition of your home.
In this post, I will discuss:
Let’s get started with this topic.
Why Do You Need A Homeowners Insurance Policy?
If you want to secure a loan or finance a residential real estate transaction, your mortgage lender will almost certainly require you to have homeowners insurance. There are two key reasons why:
Even if you don’t own your home, landlords usually require you have renter’s insurance for similar reasons.
What’s Included In The Price Of Homeowners Insurance?
A home insurance policy is one of the most customizable policies out there, but at its core a policy covers five main items:
Let’s talk more about each aspect of coverage.
Personal Liability
Homeowners insurance provides liability coverage for damages or if someone gets injured on your property and files a lawsuit. For example, if your neighbor slips on one of your kid’s toys, falls, and hurts themselves, your home insurance policy will cover their medical bills, pain and suffering, and/or lost wages - should they decide to sue you.
Even your pets are included in your personal liability, so if your dog bites your neighbor, their medical expenses are covered.
Interior And Exterior Damages
If your home is vandalized, struck by lighting, or if there’s fire damage, your policy usually compensates you for the required repairs. Sometimes, your policy will even cover a total rebuild!
Keep in mind: homeowners insurance policies vary greatly, so you’ll want to ensure that you know what you’re getting coverage for. For instance, many general policies won’t cover earthquakes, floods, or rodent damage, so you may need to purchase additional insurance for those types of protection. Speak with a licensed insurance agent about what you should have included in your policy.
Other Buildings On Your Property
Most home insurance policies will also cover your shed, garage, or other outdoor property structures. If your property has additional structures, you’ll want to double check with your insurance agent to ensure they’re included in your policy.
Loss Of Personal Items
If your home is burgled, homeowners insurance will cover the cost of your stolen personal property.
When selecting a policy, you should ensure your coverage meets or exceeds the total cost of your personal belongings. If you have $300,000 worth of artwork and jewelry stolen, but only $100,000 in coverage, your policy will only pay that $100,000, meaning you’ll be out $200,000 in property value. To ensure you're covered, you might also want to consider purchasing umbrella insurance.Displaced Living Expenses
If the damages your home endures require you to temporarily move into a hotel, your homeowners insurance usually covers additional living expenses, like the cost of the hotel and restaurant meals.
Because home insurance coverage varies greatly, you’ll want to make sure you’re covered for displaced living expenses before racking up a hotel bill, just in case.
What Factors Contribute To Home Insurance Cost?
There are multiple factors that impact how much your home insurance costs. The biggest ones include:
Some of these factors are in your control, but not all of them. One major home insurance cost is the state you live in.
Dwelling coverage varies greatly by state. For example, here’s the average cost of home insurance for 10 states for $250,000 in dwelling coverage, courtesy of Bankrate:State | Average Annual Premium | Average Monthly Premium |
Alabama | $1,624 | $135 |
California | $1,014 | $85 |
Florida | $1,353 | $113 |
Illinois | $1,322 | $110 |
Kansas | $2,694 | $255 |
Minnesota | $1,785 | $149 |
New York | $987 | $82 |
Oklahoma | $3,519 | $293 |
Pennsylvania | $730 | $61 |
Vermont | $686 | $57 |
The average annual rates cost $2,833 more if you live in Oklahoma than in Vermont. That is more than $236 a month!
Luckily, regardless of what state you live in, there are ways to lower these costs.
9 Ways To Get Cheap Homeowners Insurance
It is possible to get cheap home insurance. However, if you want to save, you'll have to put in the work.
Here are 9 ways to get the best, cheapest homeowners insurance.
1. Do Your Research
The first way to get cheap home insurance is to read up on policies and how they work. You should figure out what you need, what you don’t need, and what pricing you should expect from an insurance company.
To get you started, you should understand a few of the basics:
Let’s explore these in a bit more detail.
Market Value vs Insurance Value
Even developers and investors get confused by home insurance. When buying or selling a property, the market value is usually what most people focus on. However, when it comes to home insurance premiums, insurance companies are more interested in the insurance value of your home.
What Is Market Value?
Your home’s market value is the estimated price for which it’s likely to sell, based on the number on your real estate appraisal. The appraisal takes numerous factors, such as the current state of the market, and your property’s condition and location.
The market value can be similar to your insurance value, but that’s not always the case.
What Is Insurance Value?
Your home’s insurance value refers to all costs required to rebuild your property. Some of the main factors include the age and size of your property, current construction cost, and special property features.
Simply put:
A licensed appraiser can give you an estimate of your insurance value. Knowing this value can help you find the best cheap homeowners insurance rates.
Home Insurance vs Private Mortgage Insurance
Home insurance and private mortgage insurance (PMI) may sound similar—and they’re both important—but these two coverage types are distinct. At this point, you know how homeowners insurance works, so I’ll dive into mortgage insurance.
What Is PMI?
PMI protects your lender if the down payment for your conventional loan is less than 20%. PMI premiums cost anywhere from 0.58% to 1.86% of your original loan amount.
If your loan is $300,000 and you’re paying 1% PMI, that’s an additional $250/mo or $3,000/yr out of your pocket. If you’re striving to get the cheapest home insurance available, you want to get rid of PMI.
If you’ve already put 20% down, you’ll never have to worry about paying PMI to begin. However, 20% is often more than what people can afford. If you’re already paying PMI, it will be canceled after you repay a certain percentage of your mortgage, usually 22%.
There’s also a handy trick to try to cancel PMI faster: if your property goes up in value, get it appraised. If your total equity is greater than 22% of your total home’s value, PMI gets canceled.
For example, let’s say your home’s market value is $400,000, and your down payment was 10%, or $40,000. You now have a $360,000 loan to pay off. If your PMI is 1%, that’s an additional $300/mo or $3,600/yr. To stop paying PMI, you need to pay your loan down to $312,000—the magic number that gives you 22% in equity. Unfortunately, this can take awhile.
However, let’s say your property’s market value goes up and you get it appraised for $450,000. 22% of $450,000 is $351,000, meaning that as soon as you pay off $9,000 of your original loan, you can stop paying PMI because you’ll have enough in equity.
After, your homeowners insurance covers the rest of your lender’s financial interest.
The Benefits Of A Government Plan
If you work for the federal government, some insurance companies will offer you discounted premiums. Here are a few divisions that can reap these benefits:
Ask your boss, union rep, or HR department about the options available to you.
2. Shop Around
There are multiple places where you can find the cheapest insurance company that works best for your needs. Here are a few to consider:
Your Personal Network
Start by asking your neighbors. Often, your homes have a comparable insurance value, since they live right next door. Also, consider asking your friends, co-workers, and acquaintances about which home insurance company they chose and why. Not only will this help you create a list of companies to look up, you may also learn which insurance companies to avoid.
Your State Insurance Department
Your state insurance department’s website should have a wealth of information about who sells homeowners insurance in your state. They’ll also usually have many insurance policies that could be unique to your state. For example, Washington State’s state insurance department website contains information about earthquake, landslide, and volcano coverage.
Consumer Guides
Consumer guides can tell you how other customers feel about their homeowners insurance companies. One site you should consider is Consumer Reports. It’s an independent non-profit that rates over 8,500 products, including home insurance.
Google It
Another easy way to find the cheapest homeowners insurance companies is by looking for articles that compare their pros and cons. Enter something like “cheapest homeowners insurance companies” or “best home insurance companies” in the Google search bar, and see what comes up.
When you’re shopping around for the right homeowners insurance company, remember that cheapest doesn’t mean best. You want to find the cheapest home insurance that suits your needs. If you’re just looking for cheap home insurance, you risk not getting coverage for something you’ll desperately need.
3. Ask About Discounts
Insurance companies offer a variety of discounts. However, not all of them offer the same discounts, and discount amounts can vary depending on what state you live in.
Ask your current homeowners insurance providers about what discounts you may qualify for. These discounts are applied in numerous ways, such as when you’re making changes to your home or when you buy a new policy. In many cases, you can save up to 18% by bundling your home and auto insurance policies.
Here are some of the largest discounts you should ask about, and how much you can save:
Type of Coverage | Average Discount |
New home; either recently purchased or newly constructed | 40% |
Age of your home | 5 years old - 26% 10 years old - 13% |
Home and auto bundle | 18% |
Upgrades to electrical, heating, and/or plumbing done simultaneously or during a short time period | 13% |
Roof and other construction upgrades | 11% |
If you’re a veteran, you qualify for additional homeowners insurance discounts.
4. Raise Your Deductible
Your deductible is the amount of money you’ll have to pay out of pocket before your insurance company begins paying for the claim. The cost of your home insurance policy decreases if you raise your deductible, because you agree to pay more out of pocket if something happens, meaning insurance companies will have to pay less.
Raising your deductible has its pros and cons. Let’s say you raise your deductible from $5,000 to $10,000, and in turn, your insurance company gives you a 10% discount on your rate. If you don’t have to file a claim on your home this year, you’ve saved 10%.
However, if you have to file a $20,000 claim, the first $10,000 comes out of your pocket. While your insurance may be 10% cheaper, you spent an additional $5,000 because you raised your deductible.
Raising your deductible is a gamble, so think carefully before doing so.
Deductibles And Natural Disasters
Many policyholders have a flat homeowners insurance deductible. However, this isn’t the only deductible you should be mindful of. Additional policies or endorsements, such as Wind or Hail Percentage Deductible, a Named Storm Deductible, or Earthquake coverage, may be needed depending on where you live and the condition of your home. For example, if your roof is in poor condition, you may be required to purchase a Wind or Hail Percentage Deductible.
The cost of these coverages and their deductibles vary, so ask your agent about insurance rates for these policies.
5. Review Your Property Once A Year
Set a date on your calendar once a year, or review your assets. The market value or insurance value of your property may have shifted in the last year. If you’ve recently upgraded your roof or other new construction, you could qualify for discounts or more affordable home insurance coverage.
Also, you could be making more, or have more valuables than you did a year ago. This means you may require more coverage than you currently have to make sure that you’re fully protected. Estimate the total value of your personal possessions to determine how much coverage you need. Odds are, you have more personal possessions than you think!
Even if you haven’t experienced significant shifts in your property or personal possessions, it never hurts to ask your insurance company what types of coverage are available. The insurance industry constantly adapts to their surroundings and changing market conditions. There may be new policies available in your area that weren’t around a year ago, or the price for a policy you currently have may have dropped.
6. Safeguard Your Home Against Thieves And Natural Disasters
Another easy way to get cheap homeowners insurance is to better protect your home. When your home is more secure, it’s less likely to be the target of theft and can better weather a natural disaster. Your property will be considered less risky in the eyes of insurers, which often leads to home insurance discounts.
Let’s look at three key areas:
Theft
Home insurance covers theft already, but further protecting your property can make home insurance cheaper. Here are a few ways to score a better rate:
Not every security system will qualify for a discounted rate. Check with your insurance company before making any major purchases, if cheaper rates are a factor in your decision.
If you live in a gated community, have key-lock devices, or if your complex has security guards present, you may be eligible for additional insurance discounts.
Fires
Like theft, fire insurance coverage is usually standard in homeowners policies. However, there are several measures you can take to get a better deal. For example, installing a home sprinkler system can net you a discount of as high as 35%.
Here are a few other ways to get cheap home insurance by being proactive about fire safety:
Leaks
Home insurance covers roof leaks in the event of sudden hail or high winds. However, if you neglect to take care of your roof, your insurance company may not cover it.
Safeguard your home by upgrading your roof and shutters. Certain kinds of roofing materials can lead to discounts on your home insurance policy. Check with your agent to see which materials can net you cheaper rates.
7. Avoid Having “Attractive Nuisances”
Trampolines and swimming pools can be fun additions to your home. However, home insurance companies refer to them as “attractive nuisances.”
Basically, your insurance company views these fun additions as dangerous features that pose a higher risk of serious injury, lawsuit potential, and even death. If getting the cheapest homeowners insurance rate is a high priority, think twice before buying that bike ramp.
8. Keep Or Improve Good Credit
Most home insurance companies examine your “credit-based insurance score” when determining what rates you qualify for.
Your credit-based insurance score is similar to your personal credit score, with a few subtle differences.
In some states, including Massachusetts and Maryland, your credit-based insurance score doesn’t matter, because home insurance companies aren’t allowed to use credit as a factor when determining premiums. If your state does, you can improve your credit-based insurance score the same way you improve your personal credit score: by keeping your balances low or paying them off on time, and by staying on top of your loans and other bills.
9. Stick With The Same Insurance Company
If you’re a long-term policyholder who is in good standing and hasn't filed any claims, you may qualify for loyalty discounts. Different home insurance providers have different rules, but most are open to reducing the cost of their premiums each year or after a set number of years.
For example, Allstate offers new customers a 10% welcome discount, and an additional 10% for each year you remain a customer.
Check out other home insurance providers before making a switch to see if the grass is greener on the other side. Also, contact your home insurance company to see if you qualify for a loyalty discount and if you’re currently receiving it.
Final Thoughts On Getting The Cheapest Home Insurance Rates
Getting the best cheap homeowners insurance for you requires a lot of research and work on your end. However, by putting in the effort, you could end up saving thousands every year, which means more money in your pocket.
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