Factors that affect the cost of homeowners insurance include which of the following?

It’s no secret that Florida has some of the highest homeowners insurance rates in the nation, and that may tempt some to go without coverage or skimp on their policy – but that can be a big mistake, costing you more in the long run when a fire, hurricane, tornado, or severe wind storm does serious damage to your home or even destroys it.

And aside from repairing or replacing your building, there are liability costs should someone be injured on your property to think about, along with the costs incurred while living somewhere else while your home is being rebuilt. Homeowners insurance covers all of that, and it’s risky to go without it.

But there are still ways to lower your homeowners policy premiums. Understanding the main factors affecting the cost will help you do just that – including these four:

1. Your Dwelling
The replacement value of your home is the biggest single factor in determining homeowners insurance premiums. The building’s square footage, the quality of construction and types of materials incorporated into your home, and the current cost of construction work in your local area will all come into play.

It’s recommended to get at least 80% to 90% dwelling coverage, based on the replacement cost of your building (not necessarily the same as its market value), but 100% is ideal.

More expensive dwellings cost more to insure, while older ones can cost more too if they would require a lot of work to bring them up to code following a disaster.

Many other cover levels in a homeowners policy are set as a percentage of the dwelling coverage, including personal property protection, loss of use insurance, and detached structures coverage.

2. Liability & Medical Payments
Normally, you buy at least $100,000 liability coverage with your homeowners insurance. While that may sound like a lot, it goes fast in the event of a personal injury or property damage claim against you. Most people “in the know” recommend to increase liability cover as high as $300,000.

Medical payments coverage sounds a lot like liability to most people, but it’s actually different. Liability covers you if you are at fault, while medical payments covers it regardless of fault. Medical payments cover normally is set at from $1,000 to $5,000 – so it’s used mostly for more minor incidents.

3. Location
Location, location, location is a constantly cited saying in the real estate business, and it applies pretty well to insurance premiums as well. Insuring the same building in downtown Miami or on the Keys could easily cost twice as much per month as insuring a home in Tallahassee – which has the cheapest zip codes for homeowners insurance in the state.

Partly, this has to do with which locations are more prone to hurricane damage or other weather damage. But it also has to do with crime rates and claim rate averages per zip code.

4. Deductibles
You can get your homeowners’ deductible based on a percentage of the insured building’s value or as a set dollar amount. Deductibles of 2% or of $500 to $1,000 are pretty common in Florida.

Hiking up a deductible to $2,500, the highest bracket usually permitted, will greatly reduce your premiums but risk high out of pocket expenses.

For help in determining your ideal deductible, liability, dwelling coverage, and more, contact an expert insurance agent at Flagler County Insurance Agency today!

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Homeowners must make sure they know how premiums are calculated.

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Key points

• Home insurance is a crucial form of asset protection.
• Homeowners must cover the costs of homeowners insurance premiums to get the necessary protection.
• Many factors affect the cost of premiums including the value of the home.

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Property owners need to have home insurance. Anyone with a mortgage is going to be required to have a policy in place. But regardless of whether a lender mandates it, all homeowners should buy coverage to protect their house and personal property within it. 

Homeowners insurance comes at a cost, though. And it's important for homeowners to understand the factors that affect the price of coverage. This matters both when buying a house, as some homes are more expensive than others, as well as when you are a current property owner so you'll know what to expect when setting a budget for coverage. 

So, what are the different things that affect premium prices for homeowners insurance? Here are three big factors insurers consider when determining the cost of a policy.

1. The cost to rebuild the home

When buying home insurance, it's important to make sure the policy provides sufficient coverage to rebuild the home if it's destroyed or damaged. Homeowners should typically choose replacement value coverage, which provides funds to restore the home to its current status. This is an alternative to market value coverage, which pays just what the house is worth at the time -- which isn't always enough to rebuild.

The more expensive it would be to rebuild a home, the more insurers will charge for coverage. That's because if something goes wrong with a costly home, the insurer faces a bigger risk of having to pay out a large sum. 

2. The types of coverage purchased

The kinds of insurance a homeowner chooses will also affect the cost of an insurance policy. 

As mentioned above, replacement value coverage can provide more certainty that the house can be rebuilt compared with market value coverage -- but replacement value coverage is more expensive.  

Homeowners can also opt for additional protection beyond just insurance to rebuild the house. For example, most people buy protection for their personal property. And most people buy liability coverage to protect them in case someone gets hurt on their property and they're held responsible for the resulting damages.  

Buying a substantial amount of personal property and liability protection can add to premium costs, but is an important way to protect assets since most people can't pay to replace all they own after a disaster or cover injury costs out of pocket. 

3. The risk of claims being made

Finally, the risk of an insurance claim also affects premiums. If an insurer believes it is more likely to have to pay out a claim, then the insurer will charge more for coverage. 

An insurer may believe there is a higher risk of a claim being made if the home is in an area prone to covered disasters, such as an area with lots of tornadoes. Or if there is a swimming pool or a dangerous dog on the property, then the insurer will charge more because of the chances of someone drowning or being injured by the dog and the insurer having to pay out.

Homeowners should be aware of each of these factors so they'll know how much they can expect to pay based on the value of their home, where it's located, and the risks it presents. 

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About the Author

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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