Why is my condo insurance so expensive?

The price you pay for your homeowners insurance can vary by hundreds of dollars, depending on the insurance company you buy your policy from. Here are some things to consider when buying homeowners insurance.

1. It'll take some time, but could save you a good sum of money. Ask your friends, check the Yellow Pages or contact your state insurance department. (Phone numbers and Web sites are on the back page of this brochure.) National Association of Insurance Commissioners (www.naic.org) has information to help you choose an insurer in your state, including complaints. States often make information available on typical rates charged by major insurers and many states provide the frequency of consumer complaints by company.

   Also check consumer guides, insurance agents, companies and online insurance quote services. This will give you an idea of price ranges and tell you which companies have the lowest prices. But don't consider price alone. The insurer you select should offer a fair price and deliver the quality service you would expect if you needed assistance in filing a claim. So in assessing service quality, use the complaint information cited above and talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs.

   Check the financial stability of the companies you are considering with rating companies such as A.M. Best (www.ambest.com) and Standard & Poor’s (www.standardandpoors.com/ratings) and consult consumer magazines. When you've narrowed the field to three insurers, get price quotes.

2. Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums. Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent. Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible.

3. The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you will pay a higher premium than you should.

4. Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. But make certain this combined price is lower than buying the different coverages from different companies.

5. Find out from your insurance agent or company representative what steps you can take to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.

6. You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. These systems aren't cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you'd save on premiums.

7. Companies offer several types of discounts, but they don't all offer the same discount or the same amount of discount in all states. For example, since retired people stay at home more than working people they are less likely to be burglarized and may spot fires sooner, too. Retired people also have more time for maintaining their homes. If you're at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies. Some employers and professional associations administer group insurance programs that may offer a better deal than you can get elsewhere.

8. Establishing a solid credit history can cut your insurance costs. Insurers are increasingly using credit information to price homeowners insurance policies. In most states, your insurer must advise you of any adverse action, such as a higher rate, at which time you should verify the accuracy of the information on which the insurer relied. To protect your credit standing, pay your bills on time, don't obtain more credit than you need and keep your credit balances as low as possible. Check your credit record on a regular basis and have any errors corrected promptly so that your record remains accurate.

9. If you've kept your coverage with a company for several years, you may receive a special discount for being a long-term policyholder. Some insurers will reduce their premiums by 5 percent if you stay with them for three to five years and by 10 percent if you remain a policyholder for six years or more. But make certain to periodically compare this price with that of other policies.

10. You want your policy to cover any major purchases or additions to your home. But you don't want to spend money for coverage you don't need. If your five-year-old fur coat is no longer worth the $5,000 you paid for it, you'll want to reduce or cancel your floater (extra insurance for items whose full value is not covered by standard homeowners policies such as expensive jewelry, high-end computers and valuable art work) and pocket the difference.

11. If you live in a high-risk area -- say, one that is especially vulnerable to coastal storms, fires, or crime -- and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative or contact your state department of insurance for the names of companies that might be interested in your business. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.

12. You may pay less for insurance if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. It may also be cheaper if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live in the East, consider a brick home because it's more wind resistant. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.

    Check the CLUE (Comprehensive Loss Underwriting Exchange) report of the home you are thinking of buying. These reports contain the insurance claim history of the property and can help you judge some of the problems the house may have.

    Remember that flood insurance and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you'll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its Web site at www.fema.gov/nfip/. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area. In California the California Earthquake Authority (www.earthquakeauthority.com) provides this coverage.

If you have questions about insurance for any of your possessions, be sure to ask your agent or company representative when you're shopping around for a policy. For example, if you run a business out of your home, be sure to discuss coverage for that business. Most homeowners policies cover business equipment in the home, but only up to $2,500 and they offer no business liability insurance. Although you want to lower your homeowners insurance cost, you also want to make certain you have all the coverage you need.

Cooperative State Research, Education, and Extension Service, USDA
www.csrees.usda.gov/

In the United States, the average cost of homeowners insurance for $250,000 in dwelling coverage is $1,383 per year, or around $115 per month. The rate you pay could be higher or lower, and rates are typically calculated using a number of different factors. Home characteristics, like the age of the home, structural materials and square footage help determine your premium, but so do personal and household factors, like the owner’s claims history.

While many homeowners have come to understand at least some of the factors that determine their homeowners insurance rate, there are some that may surprise you. Factors like the size of the claims you file, your dog’s breed and items you buy to keep your children occupied outside could also affect how much you pay for home insurance. Understanding what insurers use to determine your rates is helpful as you are navigating through the numerous choices for homeowner insurance companies and coverage options.

Factors that impact your home insurance rate

Insurers note several factors that affect home insurance costs and determine your risk profile as a homeowner. A risk profile simply means how likely you are to file a claim or your home will need a claim. Keep in mind, an insurance carrier’s ultimate goal is to spend as little as possible. When an insurer weighs the multiple factors and determines there is a higher chance of a claim taking place, then it increases the home insurance rates. The following factors impact your home insurance rates:

• Replacement cost
• Credit history
• Claims history
• Marital status
• Age of home
• Deductible
• Location

Replacement cost

The replacement cost is the amount it would cost to rebuild your entire home if something were to happen to make it a total loss. Though it may never happen, having the right amount of coverage in place will help ensure you can rebuild your home. Replacement cost can sometimes be confused with market value, but they are not the same thing. The market value includes your home and the land, while replacement cost is only based on the cost to rebuild your home’s structure.

You do not have to determine how much the replacement cost is for your home. Insurance companies have valuation tools built into their quoting system to help. The agent – or online quoting tool – will ask you questions about your home to determine the replacement cost. Be prepared to answer questions about the age of the home and appliance systems (HVAC, plumbing, etc.), the roof age and materials, the type of building materials used, the square footage and even the unique features of your home, such as dormers or architectural characteristics.

Credit history

Like bank lenders, many insurers check homeowners’ credit in assessing the level of risk they are taking on. A good credit score could lead to being perceived as lower risk and rates are often reduced accordingly. Insurers often use credit as an indicator of your likelihood to make timely premium payments. Furthermore, insurers feel homeowners with poor credit are more likely to file claims under their policy than are homeowners who have very good credit.

“Most insurance carriers use credit as a portion of the rate-setting process in states where it is permitted,” said P.J. Miller, partner and independent insurance agent with Wallace & Turner Insurance in Springfield, Ohio. “While it is supposed to be a ‘portion’ of the rate calculation, most believe it plays a significant role in determining the price for homeowners insurance.”

Claims history

Insurance companies often take prior claims behavior into consideration when calculating your rate. When a homeowner files a claim, the homeowners insurance company generally assumes he or she is more likely to file additional claims in the future. Having a history of filing a number of claims might indicate an even greater future claims risk for the insurance company, regardless of the size of the claim. Insurers assess claims history on both the home and on your personal claims history at prior properties. What that means is that even if you’re insuring a new home, your prior claims history from other homes you’ve insured will follow you to the new policy and could affect your rates.

Marital status

Marriage can impact rates for a number of insurance policies, including home and auto. Insurers will typically charge lower rates to married couples because of the assumed lower risk. The chart below shows the general thought-process of insurers when factoring in marital status for rates.

Age of home

If you live in an older home or one that would likely need a lot of improvements if rebuilt, you will likely pay a higher home insurance premium. Older homes may need to be brought up to code as part of the rebuilding process, so you may want to consider ordinance or law coverage as part of your homeowners insurance package. This coverage extends to getting the home up to date with current laws or ordinances that were created after the home was built or last updated. If you make upgrades to the heating, electrical or plumbing systems, or any other relevant updates, notify your insurance agent so your policy will reflect the changes.

Deductible

A homeowners insurance deductible sets the amount you will pay out of pocket. Agreeing to a higher deductible will decrease your premium, but it could also cost you more in the event of a claim. Some insurers offer diminishing deductibles on your home policy. For example, American Family may give $100 credit toward your deductible for every year you go without filing a homeowners claim. This may lower your out-of-pocket cost if you do have to file a claim down the road.

Location

The location of your home influences the amount you pay in premiums. If your zip code is located near an area with a history of perils, such as vandalism, theft or weather-related events, then it could increase the cost of the policy. However, location could have a positive impact too, if you are located near a staffed fire station for example.

Location is also used to determine the replacement costs, since construction costs, including labor and materials, can vary depending on the community.

Surprising factors that impact your home insurance rate

Though the factors above relating to a home’s construction, history and the insured’s financial background are significant, there are many other factors considered in setting rates, which are often overlooked.

• Distance from water: “The closer a home is to the coast, the more likely it is to experience flooding or hurricane damage, and tends to increase the cost of insurance,” Harper of Kin Insurance said. According to Harper, “Flood zones play a key role in whether or not you need flood insurance. If you have a federally backed mortgage, like an FHA loan and your home is in a high-risk flood zone, you’re required to have flood insurance.”
• Filing small claims: In the view of many insurance companies filing even a small claim is an indicator you are likely to file more claims in the future, possibly larger ones.
• Living near a fire station: Wherever you live, the premiums you pay for home insurance are likely to be impacted by the proximity of your home to a fire department. The closer you are to a fire station, the greater the likelihood a fire can be quickly extinguished and severe damage, or complete destruction of your home, averted. The insurance industry generally uses the Fire Suppression Rating Schedule (FSRS) from the Insurance Services Office (ISO) to judge fire prevention. On the 10-point scale, the lower the score, the safer the home is from fire risk. If your home is further than five miles away from the nearest fire department, the rating will automatically default to a 10.
• Dog breed: Pets and dog breeds may also impact your rates. Harper explained, “Some companies will simply raise your rates to account for the increased ‘bite risk.’” Certain dogs may even be excluded from homeowners coverage entirely. “Even if your dog isn’t a ‘restricted breed’, a bite history could also impact your rate or ability to get coverage,” Harper said.
• Attractive nuisances: If you have attractive nuisances, or things on your property could be potentially dangerous and appealing, especially to children, you may also have higher homeowners insurance rates. As Harper highlights, attractive nuisances “include swimming pools, trampolines, treehouses, wells, fountains, swing sets, construction projects – anything enticing that could attract trespassers or increase the risk of an invited guest getting injured.”

This is just a snapshot. Countless additional factors may be considered in your homeowners insurance so pinpointing what factor affects insurance premiums the most could be difficult.

Home insurance policy types

Insurers further breakdown insurance policies into specific types. Each one of these forms of homeowners insurance has different levels of coverage, including which perils are included, the amount of liability and even the types of homes covered.

Both the type of dwelling and the amount of protection you want are driving factors for which home insurance policy to choose. While it may be tempting to purchase the bare minimum policy because of a limited budget, it will not offer the level of protection you would find in another type of policy.

Additional home insurance coverages

Standard homeowners insurance policies offer protection for the structure of your home, its covered contents and liability. However, you may either find yourself with insufficient limits or with damage that is excluded entirely from your existing policy. Additional policies can vary in price, but may make a huge difference in filling potential gaps in your coverage. Two key types stand out:

• Flood insurance: Flood insurance is not included in most home insurance policies. It is separately covered by policies placed with the National Flood Insurance Program (NFIP) and some private companies. While flood insurance is generally available to anyone, it is most prevalent in high-risk flood zones. The states with the highest number of flood policies in 2019 were Texas, Louisiana, Florida and California.
• Umbrella policy: “[Umbrella policies] supplement your personal liability coverage and are a more cost-effective way to increase liability limits,” Harper said. He points out it might make sense to consider an umbrella policy if you have a high net worth, are a landlord, do a lot of community volunteering, regularly host parties or gatherings or have an attractive nuisance.

There may be other options you want to add. You could speak with your insurance company and agent about optional coverages and additional policies to help create a robust insurance package.

Frequently asked questions

• • Similarly, how numerous factors influence your home insurance rates, there are several points to consider for determining the best homeowners insurance company. Start with reviewing which carriers offer the coverage options you need, positive customer service ratings, strong financial strength ratings and discounts to find which might be best for your circumstances.

    Learn more: Compare home insurance quotes

  • Whether you should lower your coverage to lower your homeowners insurance rates is a personal decision. However, you may want to consider that while having higher coverage limits can cost more, it can also offer more protection for your home. If you’re trying to decide whether lowering your coverage is the best option, it may benefit you to speak with your insurance company or agent to discuss your concerns and review your policy. From there, you may be in a better position to decide what options are best to lower your homeowners insurance costs.

    Learn more: Affordable home insurance companies