What Is A Homeowners Insurance Premium? | US News – U.S. News & World Report

When it comes to homeowners insurance premiums, many variables exist. Understanding the various components that go into factoring premiums can help homeowners make an informed decision and, in some cases, find ways of reducing their home insurance costs.

What Is a Homeowners Insurance Premium?

When insurers talk about homeowners insurance premiums, they’re referring to the amount you must pay to keep your policy active. Whether you pay this monthly, quarterly, or annually, on-time insurance premium payments ensure you can file a claim and receive compensation for damages to your home and belongings. Some homeowners pay premiums directly to their insurance companies, while others roll the premium into monthly mortgage payments as part of an escrow account.

How Are Homeowners Insurance Premiums Calculated?

When it comes to calculating your homeowners premium, insurance companies rely on a number of factors.

Location plays a significant role in terms of how safe your neighborhood is considered, particularly if you live in an area prone to flooding, hurricanes, windstorms, or other natural disasters. Population density, crime statistics, and even how far away your home is from the nearest fire station can all influence your premium. 
Insurers also factor in coverage amount when providing a premium estimate, as property values and replacement costs can vary significantly across the U.S.
Credit scores come into play, although some states restrict or prohibit the use of such information in determining premiums. Homeowners with higher credit scores typically pay lower premiums, as they are considered less of a risk than those with lower credit scores.
Deductibles directly correlate to premiums since insurers know that lower deductibles mean higher payouts from the insurance company. Those looking to reduce their premiums often agree to a higher deductible. 
Claims history also receives a close look from insurance companies, as they use this information to calculate the likelihood of homeowners filing future claims. Insurers may even look at the number of claims filed in your ZIP code.

How Much Does Homeowners Insurance Cost?

The average American homeowner pays just under $1,250 per year for a home insurance premium, according to the Insurance Information Institute (III). But premiums can vary substantially from state to state. Louisiana residents pay the highest average premiums at $1,987 per year, according to III data, while Oregon residents pay an average of just $706. Wyoming and Kentucky sit squarely in the middle, averaging premiums of $1,187 and $1,152, respectively.

And costs are rising. Premiums on average increased by more than 12% from 2017 to 2021, the III says. Major disasters, greater demand for building supplies, labor shortages, and lingering effects from the COVID-19 pandemic have all contributed to higher premiums for homeowners.

How Can I Lower My Home Insurance Premium?

For some homeowners, a high premium simply does not fit with their budget. These individuals can use several different methods to lower their insurance costs.

Asking for a higher deductible may be an option for homeowners who would rather risk paying a larger deductible in the event of a claim than budget for a higher monthly premium. 
Multi-line discounts, sometimes known as bundling, often can help reduce premiums by consolidating policies with one insurer. For instance, a couple can bundle their homeowners and car insurance and potentially pay less than they would by insuring their house and vehicle with different providers. Most insurers offer similar savings with renters insurance.
Switching insurers can reduce rates in some cases, making it important for homeowners to get several quotes and compare premiums before taking out a policy. It also pays to review your current coverage to make sure you’re still getting the best deal from your insurer. If you do switch insurers, make sure the new policy is in effect before canceling your existing one in order to avoid a lapse in coverage. 

What Company Has the Cheapest Homeowners Insurance?

Based on data compiled by U.S. News and World Report, Erie Insurance offers the cheapest average insurance premium at $98 per month. However, Erie only does business in 14 states, primarily on the East Coast. If Erie is not an option, you may want to consider Liberty Mutual, which is rated No. 2 in our rating of the cheapest homeowners insurance companies. Liberty’s average monthly premium is $112.75.

Average monthly homeowners insurance premiums

These numbers represent averages, but homeowners should note that individual rates can vary based on the type of policy, location, and the other factors discussed earlier.

Most Affordable Homeowners Insurance Companies of 2022

Any rates listed are for illustrative purposes only. You should contact the insurance company or insurance agent directly for applicable quotes.

How Do I Pay My Homeowners Insurance Premium?

Several methods exist for paying homeowners insurance premiums. Homeowners who provide less than 20% towards their down payment are typically required by mortgage lenders to pay home insurance through an escrow account. Lenders typically pay premiums on an annual basis and divide them into monthly payments as part of the mortgage.

After more than 20% of your home loan is repaid – or if you own your home outright – you can decide how and when payments are made. Some homeowners keep their premium rolled into their mortgage for ease, while others start making direct payments. At this point, homeowners can also decide whether they want to make payments annually, quarterly, or monthly. Some insurers offer discounts to those who pay for an entire year up front.

Is a Homeowners Insurance Premium Tax Deductible?

No. You cannot deduct the cost of a homeowners insurance policy from your federal income tax, according to the Internal Revenue Service (IRS). The only time the IRS allows such a deduction is when someone owns a property but rents it out. You may be able to claim a deduction if you are self-employed and work from your residence. Talk to a tax professional if you have questions about income taxes and your homeowners insurance policy.

Do Homeowners Insurance Premiums Increase After a Claim?

Filing a claim can cause your homeowners insurance premium to increase. How much it may increase depends on several factors, including the type of claim (e.g., a loss caused by a windstorm versus one caused by your own carelessness), how much the claim is for, and how many claims you have filed in the past. Whenever homeowners file a claim, these get logged in the Comprehensive Loss Underwriting Exchange database. Insurers can review up to seven years of homeowners insurance claims, which can impact premium increases long after the initial claim.

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