Factors That Impact Homeowner’s Insurance

When you buy a home using a mortgage, you must have homeowner's insurance. It is a condition of your mortgage loan. Insurance helps to ensure that the financial investment that you make is protected. Additionally, homeowner’s insurance is something that you should consider, even if you do not have a mortgage, because it helps protect your home in the event of a disaster. It can help cover the cost of repairs or replacement. However, this added monthly expense can be straining on the monthly budget. To help reduce the cost of your homeowner’s insurance premiums, you should understand the factors that impact them. You can then take action to affect these factors in your favor. The factors include:

• Credit Score: Your credit score is a numerical value that is assigned to you based on your perceived financial risk to lending and insurance institutions. The higher your credit score you have, the lower your risk is to insurance companies. Those who have a lower credit score are more likely to file an insurance claim. So, you will want to improve and have as high a credit score as you want.

• Zip Code: The area where your home is located plays a role in the cost of insurance. If you live in a state or zip code that experiences more insurance claims, is in a flood zone, or has a history of losses such as vandalism and theft, you may have higher insurance premiums.

• Coverage Amount: The cost of replacing the structure of your home is a significant factor in the cost of your insurance policy. Insurance providers will consider things like the condition of your roof, the materials used for your home’s structure, and your electrical system when determining the cost of rebuilding your home. This in turn determines the coverage amount you need.

• Age of the Home: In general, the older your home is, the higher your premiums will be. Therefore, newer homes tend to have lower insurance premiums.

• Whether Your Home is Owned Outright or Financed: If you own your home, you can choose the coverage amount you want, the risk you’re willing to take, and how much your insurance premiums will be. If you have it financed, as most people do, you will have to have an insurance policy that covers the cost of the mortgage, at a minimum.

• Previous Insurance Claims: If you or the home’s previous owner has a history of claims on the home, you may be paying higher premiums. Prior claims on the home indicate that there is a higher risk of it occurring again. Insurance companies account for this by raising premiums.