What Affects Home Insurance Prices?

Type of Construction: Frame houses usually cost more to insure than brick. 

Age of House: New homes may qualify for discounts in some states. Some insurance companies either may not insure very old homes or offer a limited form of coverage. 

Local Fire Protection: Your home's distance from a fire hydrant and the quality of your local fire Division determine your fire protection class. 

Amount of Coverage: The amount of coverage you buy for your house, contents and personal liability will affect the price you pay. 

Deductible Amount: Your choice of a higher deductible will reduce the price for home insurance. 

Discounts: In some states, insurers offer lower prices for such things as insuring your home and car with the same company and installing deadbolt locks or alarm systems. 

Top of Page

What Deductible Should I Choose?

The deductible applies only to coverage on your house and personal property. It is the amount you have to pay out of pocket on each claim. 

A policy with $100 deductible will cost more than one with $250 deductible. Higher deductibles may be available at a reduced price. 

Top of Page

Basic Coverages Available

Whether you own or rent, there are different packages of home insurance offered to protect your home and belongings. 

Each package protects against a specified number of perils. Perils are events that cause damage to property. Three examples are fire, windstorm and theft. In addition to coverage for named perils, each package policy usually contains four additional types of coverage: property damage, additional living expenses, personal liability and medical payments. 

Home insurance policies apply to most owner occupied single-family homes, and are modified slightly for apartments and condominiums.

Top of Page 

Property Damage

Property damage coverage helps pay for damage to your home and personal property. Other structures such as tool sheds, detached garages, houses and their contents are also covered. You should check with your agent or your insurance company to determine if the amount of coverage on other structures is sufficient. 

Personal property is the contents of your home and other personal belongings owned by you or family members who live with you. 

Home insurance policies may provide limited coverage for small boats; however, most home insurance policies do not cover motorized vehicles unless they are unlicensed and used only at your home. Your insurance agent or your insurance company can help you find appropriate coverage for your car, boat, snowmobile or other recreational equipment. 

Some forms of personal property, such as, silverware, computers, guns, money, expensive antiques and jewelry, have limited coverage under your homeowner's policy and may need additional insurance. This coverage can be added to your policy as an endorsement. 

You can choose to insure your home and belongings for either replacement cost or actual cash value. These terms are explained below.

Top of Page 

Replacement Cost or Actual Cash Value?

Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. 

Depreciation is the decrease in home or property value since the time it was built or purchased because of age or wear and tear. 

Many insurers require homeowners to insure their homes for at least 80 percent of the replacement cost. If the homeowner fails to insure for at least 80 percent of the replacement cost, a penalty is applied to partial losses. For example, if it would cost $50,000 to replace your home and it is insured for $40,000 (80 % of its replacement value), and a fire causes $25,000 worth of damage, then your insurance company will pay the full $25,000. 

On the other hand, if your $50,000 home is insured for $30,000 (which is less than 80 % of its replacement value), and you suffer a $25,000 loss, your company would pay for only part of the loss. You would have to pay the balance out of pocket. Your company would pay for damages based upon the following formula: 

Amount of insurance carried / Amount of insurance necessary.
or 

$30,000/ $40,000 = ¾ or 75% 

Using these figures, your company will only pay for 75 % of your $25,000 loss. Hence, ¾ x $25,000 loss = $18,750 paid by the company. You would have to pay the balance: $6,250. 

As you can see, insuring your home for at least 80 % of its replacement cost is very important. You may wish to insure at 100 % of replacement cost so you will have sufficient coverage in the event of a total loss. 

Actual cash value is the amount it would take to repair or replace damage to your home after depreciation. For example, if your roof has a 20-year warranty and is 17 years old, there would be depreciation for the age and condition of the roof. 

Most standard home insurance policies cover the contents of your home (i.e., personal belongings) on an actual cash value basis. Many insurers offer an option for you to insure your belongings at replacement cost. The premium will be slightly higher for this coverage; however, you may want to consider the option. 

Whether your home is insured for replacement value or actual cash value, it is important to keep track of its value. For instance, the addition of a room, new insulation and yearly inflation all increase the replacement cost of your home, while the actual cash value of the home may decrease over time.

Top of Page 

Additional Living Expenses

Most home insurance policies provide additional living expenses that will pay some expenses if your home is damaged by an insured event to the extent that you cannot live there while repairs are being made, or if you are denied access to your home by government order. These expenses could include limited motel, restaurant and warehouse storage. 

Top of Page

Personal Liability

This coverage protects you against a claim or lawsuit resulting from (non-auto and non-business) bodily injury or property damage to others caused by your negligence. This coverage applies to you and all family members who live with you. You should check with your agent or insurance company to determine if the amount of personal liability coverage is sufficient. 

Top of Page

Medical Payments

Regardless of who is at fault, this coverage pays medical expenses for persons accidentally injured on your property by a member of your family or by your pets. Medical payments do not apply to your injuries or those of family members living with you or to activities involving your at-home business. 

Top of Page

Insurance Forms

An insurance form is another name for an insurance policy, and it specifies what perils your home and belongings are insured against. The following are descriptions of the various insurance forms available for homeowners, renters and condominium owners. Not all insurers use these exact terms to describe their home insurance forms; however, the coverage provided will be similar. 

The five homeowners package forms offered to owners of single family owner occupied homes are HO-1, HO-2, HO-3, HO-3 with HO-15 and HO-8. These policy forms insure your home and belongings against at least 11 named perils. The more perils your policy covers, the more you will pay for the policy. 

Basic Form (HO-1) insures your property against the first 11 basic perils shown in the chart on page 12. 

Broad Form (HO-2) covers the 18 perils listed in the chart on page 12. 

Special Form (HO-3), the most popular of all homeowner's forms, offers a broad range of coverage. This form provides comprehensive coverage on your home and broad named peril coverage on your contents. 

Comprehensive Form (HO-3 with HO-15) covers your home and personal property for everything that is not specifically excluded. This policy generally provides the broadest coverage available, but is not offered by all companies. It usually costs more. 

Modified Coverage Form (HO-8) is designed to provide package coverage to the owner-occupants of homes that do not meet all the requirements applicable to other homeowners forms. The HO-8 provides building and personal property coverage slightly more restrictive than that of other homeowners forms for owner-occupants that include a replacement cost clause. The HO-8 is particularly well-suited for residences that have suffered extensive depreciation. 

Your home may not qualify for one of the five homeowners package policies, therefore, a company may offer you limited coverage on your house. This coverage may be Fire and Extended Coverage. Your home and only your home would be covered for damage due to very specific perils or losses. 

Top of Page

Renters' Insurance

If you rent an apartment or a house, you are responsible for liability coverage and for insuring your personal possessions. Liability coverage
protects renters the same as it would if you were a homeowner. 

The owner of the property is responsible for insuring the building and for obtaining his or her own liability coverage. 

Tenants Form (HO-4), or a renter policy, insures your household contents and personal belongings against the perils included in the home insurance Broad Form (HO-2). Like home insurance, it provides coverage for additional living expenses and includes personal liability protection. 

Top of Page

Condominium Insurance

Your condominium association should purchase a policy that covers the building, including any common walls and grounds, including liability associated with common properties. You have a right to examine the association policy. 

To protect your contents and interior walls, you may purchase Unit-Owners Form (HO-6). An individual unit-owner policy is similar to home insurance and renters' insurance. 

Condominium Unit-Owners Form (HO-6) will cover a unit-owner who wishes to insure his or her property or to cover any items not insured by the association's policy. A unit-owner policy will also pay for property damage to personal belongings, wall, floor and ceiling coverings, and any accessories not originally installed in the unit. It also provides personal liability protection. 

Top of Page

Guaranteed Cost Coverage 

Guaranteed replacement cost coverage is the most complete coverage for your home. To obtain this type of coverage, you typically must meet specific underwriting rules and conditions of the company. This may include increasing the amount of your insurance on a monthly, quarterly or yearly basis to keep up with the inflation rate. Check with your insurance agent to determine if an additional premium is required and if there are exclusions or conditions that apply. 

Top of Page

Scheduled Personal Property Endorsement

This endorsement is sometimes called a "personal article floater." A personal article floater covers possessions such as jewelry, furs, stamps, coins, guns, computers, antiques and other items that may exceed normal limits in your regular home insurance policy. A personal article floater itemizes each article, gives a description of the article insured and lists excluded perils. It often provides coverage that is broader than the coverage granted in the home insurance policy.There is typically no deductible applied to this coverage.

Top of Page