The cost of your insurance policy depends not only on the coverage you select, but also on a number of other factors.

Cost Factors You Can’t Control

Factors such as your home’s location, age, and building materials are largely beyond your control.

Where You Live

Insurance companies divide areas into territories and assign rates based on the losses companies experience in each territory and such factors as the quality of police and fire departments, incidence of crime, and general level of maintenance of the housing stock. Prices for homeowners insurance vary substantially from territory to territory in the Delaware Valley area.

Within territories, companies set rates according to the property’s proximity to a fire station and a fire hydrant, and on the quality of the fire department and water supply for firefighting. Rates are usually much lower for homes in “protected” areas within five miles of a fire station and within 500 to 1,000 feet of a fire hydrant. Premiums for homeowners insurance in unprotected areas are typically 40 to 60 percent higher than in protected areas.

Building Materials

Insurance companies rate houses as frame, masonry, “superior,” or in a similar category of construction. The lowest premiums go to houses in the “superior” category—houses in which all floors, the roof, and all exterior walls are constructed from noncombustible materials like concrete, metal, or gypsum. The masonry construction category includes houses with exterior walls made of a noncombustible material like brick, stone, or adobe but that have floors or roofs made of combustible materials. The most expensive rating is for wood-frame houses, including houses with wood, vinyl, or aluminum siding.

Premiums for superior construction are about 15 percent less than for masonry. At a location with good fire protection, frame construction costs on average eight percent more than masonry construction. At a location with poor fire protection, construction materials matter more because frame houses are more likely to totally burn. In such a location, total premiums are about 20 percent higher for a frame house than for a masonry house.

While frame construction is a disadvantage in the event of fire, it is an advantage in an earthquake. If you purchase earthquake coverage, your overall homeowners premium is likely to be higher for a masonry house than for a frame house.

How Old or Historic Your House Is

If your house is less than 10 years old, most companies offer a premium discount, and some offer discounts on houses less than 25 years old. This discount can be as high as 50 percent for a brand-new house but only about half as much for a five-year-old house and likely to be five percent or less for older homes.

If your house was built before 1930, you may not be able to qualify for an HO-3 policy. Instead, you may be offered an HO-8 policy, which will not cover damage caused by accidents such as bursting pipes or electrical shortages that occur more often in older homes.

If your home is located in an historic district, expect to pay much higher premiums, since historic districts usually require exterior damage to be repaired to replicate its original features and appearance. Also, homes in historic districts are likely to be limited in choice of insurers, since many insurers won’t write policies in these neighborhoods. Some insurers—such as Chubb and Fireman’s Fund—specialize in insuring old or historic homes.

Features of Your Home

Most insurers charge higher premiums if your home has features that include—

  • A fireplace or wood-burning stove;
  • A pool, tennis court, trampoline, or outdoor hot tub;
  • A fully or partially finished basement;
  • A garage located beneath a living area;
  • An electrical system that has not been updated with a circuit breaker;
  • A roof composed of wood shingles;
  • A roof over 20 years old; or
  • A furnace more than 20 years old.

If You Have a Dog

Most insurers charge higher premiums to homeowners who own a rottweiler, pit bull, or other breed of dog that the company believes has a propensity to attack strangers, and most insurers charge higher premiums to homeowners whose dogs have ever bitten strangers. Some insurers specifically exclude damages caused by dog bites from their liability coverage.

Your Marital Status, Age, Occupation, and Other Factors

Some companies charge higher rates to younger families, some charge higher rates to singles, and some use policyholders’ occupations as criteria in calculating rates.

Companies, unfortunately, are increasingly using secretive and opaque methods to calculate their rates. The only way to determine whether you’re paying too much is to periodically shop around for a better rate.

Cost Factors You Can Control

Although your homeowners insurance premium is determined by many factors that are beyond your control, you do have choices that can minimize what you pay. Most important is the company you use and how much insurance you purchase. But you also have control over several other factors.

Claims History

Because claims can drastically increase your premiums, try to limit the number of claims you make.

The most common result of filing claims is that your insurer may refuse to renew your policy. You will have trouble finding another reasonably priced insurer that will agree to write you a new policy, and, when you find one, you’ll be considered a high-risk customer and charged high premiums. In a worst-case scenario, you can’t find an insurer and are forced to obtain coverage with your state’s FAIR [Fair Access to Insurance Requirements] plan, which is likely to charge higher premiums than even the most expensive private insurers.

Even if your claims history doesn’t cause your insurer to drop your policy, making claims will probably raise your premium. Some insurers offer steep discounts to customers who have not made any claims during a two-to-five-year period. Others simply increase rates for policyholders who make claims.

Your Deductible

All homeowners insurance policies include deductibles; your loss must exceed the deductible amount before the insurance company’s coverage takes effect. Most companies apply a standard deductible of $1,000 or $2,000. All companies, however, allow you to raise your deductible above the basic level.

By taking as high a deductible as you can, you reduce your premiums substantially. Figure 1 shows the typical savings. Moving from a $500 deductible to a $1,000 deductible lowers insurance premiums by an average of about 12 percent. A $2,000 deductible saves on average about 21 percent compared to a $500 deductible.

When you take a high deductible, you’re also less likely to file small claims that may generate future premium hikes. Keep in mind that the purpose of insurance is to protect you from losses that you can’t afford to cover yourself. If you buy insurance for small losses, you pay insurance company overhead—sales, administrative, and claims handling costs—to deal with losses you could cover out of your own pocket. On average, only 60 cents of every dollar of policyholders’ premiums is returned in claims payments. The rest goes to company overhead and profit—a waste of money from your standpoint. You need to determine how big a loss you can incur without unacceptably disrupting your life, and then set your insurance deductible levels accordingly.

Protective Devices

You can get discounts for installing devices to protect your home from burglary and fire. Deadbolt locks, fire and burglar alarms, fire extinguishers, or a combination of these devices will generally save you one or two percent. Bigger discounts—typically an additional five to 10 percent—are available for homes that have alarms that report to a central-station monitoring service. The biggest discounts usually go to homes with full sprinkler systems. Click here for ratings of home alarm installers.

Dual-Policy Discounts

Another type of discount is for dual policyholders. If you purchase auto and homeowners insurance from the same company, some companies will give you a discount off your homeowners premium, others will cut your auto premium, and some will cut both.

Keep in mind that such discounts won’t make a high-priced company a good deal. Click here for our most recent report on auto insurance.

Credit History

Most insurers use credit scores to help determine premiums. With many companies, your credit score influences the rates you’re offered more than any other factor: The prices most companies offer customers with poor credit are double what they offer customers with excellent credit—with some companies, the poor-credit penalty more than triples their rates. The logic is that if you handle your finances carefully, you are more likely to be careful with the investment in your home. Many consumer groups—including Checkbook—oppose this use of credit scores, arguing that the scores are not a direct measure of insurance risk and that using the scores in insurance pricing hurts low-income consumers, whose scores tend to be lower on average.

Smoking

Since smoking increases the risk of fire, most insurers charge higher premiums for households that include one or more smokers.