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How Much Does Homeowners Insurance Cost?

Whether you’re buying your first home or your third, calculating the cost of homeowners insurance can be confusing. To make it easier, we’ve put together this informative guide. Here are answers to five of the most frequently asked questions about homeowners insurance.

1. What is the average cost of homeowners insurance?

How much you’ll pay for homeowners insurance depends on many factors, including home location, value, size and age. Keeping this in mind, the average home insurance premium costs $1,096 according to the National Association of Insurance Commissioners’ Homeowners Insurance Report. Florida reported the highest average premiums ($2,115) and Idaho reported the lowest ($561).

To get a rough idea of your yearly premium, the Federal Reserve Bureau recommends dividing your home’s appraised value by 1,000, then multiplying the result by $3.50. Using this calculation, a home insurance policy on a $377,700 house (the average sale price in the US) would be about $1,320 annually.

Tip: Remember these are averages. How much you pay for homeowners insurance may be considerably less or more. Getting a personalized quote is the only way to accurately estimate how much your homeowners insurance will cost.

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2. Why do I need homeowners insurance?

If you’re financing your home, your lender will likely require you to get homeowners insurance — but that’s not the only reason you need it. Even if you pay cash for your home or you’ve paid your home completely off, homeowners insurance is vitally important to protect your future financial security. Not only can it help cover obvious misfortunes like theft, burglary, fire, hail and lightning, it may also help cover you if someone is injured on your property.

Tip: It’s important to note that home insurance policies don’t typically include flood insurance; this protection is usually purchased separately. Depending on where you live, flood insurance may be required by your lender. And even if it’s not, you may want to consider the benefits of flood insurance.

3. How much insurance do I need for my home?

At a minimum, you need enough homeowners insurance to cover the structure itself, personal possessions, additional living expenses and liabilities to others. Here are more details about what to keep in mind when considering these possibilities.

  • Purchase enough insurance to cover the expense of rebuilding your home at current construction costs. Have your home appraised to make sure you buy adequate coverage.
  • Complete a home inventory to find out how much coverage you need for your personal possessions. Use a home-inventory app like Encircle to make the process easier. Make note of particularly expensive personal possessions, like collections, jewelry and computers. Most homeowners policies put limits on coverage for items like these, but you may be able to insure them with a floater insurance or an endorsement.
  • Buy enough coverage to offset the cost of additional living expenses. If you need to relocate while your home is being repaired, you’ll have to pay for things like a hotel and meals.
  • Make sure you have personal liability coverage on your home. If you or someone in your family causes bodily injury or property damage to someone, that person can sue you. Most homeowners insurance policies come with a minimum of $100,000 coverage, but it’s not unheard of for people to purchase $500,000 or more of coverage.

Tip: If you have investments or savings that exceed the liability limits of your policy, consider buying an umbrella policy for extra protection.

4. How much home insurance can I afford?

There’s no one-size-fits-all advice when it comes to determining how much insurance you can afford — in the end, it’s a decision based on your personal financial situation. That said, some experts suggest factoring your homeowners insurance expense into your overall housing budget, which includes things like your mortgage payment, property taxes and homeowners association dues. One rule of thumb is to spend no more than 35% of your pretax income on your total housing costs.

Tip: The more you spend on housing (including homeowners insurance), the less money you’ll have available for savings and unforeseen expenses. Talking with a licensed insurance professional can help ensure you get the coverage you need without overspending.

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5. How can I save on my homeowners premium?

There’s no need to pay more than necessary for homeowners insurance. Here are a few ways you may be able to reduce your premiums.

  • Comparing prices by shopping around is one of the most effective ways to get the best rate on home insurance, but price shouldn’t be the only factor you consider when choosing an insurance company. Research company reviews, get quotes from at least three top home insurance providers and compare coverage item by item.
    Purchasing a monitored home security system makes your home three times less likely to be burglarized than homes without security systems. Recognizing this fact, many providers offer home insurance discounts of up to 25% to homeowners who install these security measures. Ask the providers you’re considering whether they offer this type of discount.
  • Raising your deductible will decrease your monthly payments. The deductible is how much you pay before your insurance covers your claim. For example, if you have a $500 deductible, and you file a claim for $2,000, you’ll pay $500 and your insurance provider will pay the remaining $1,500. Although raising your deductible can lower your premium, keep in mind that it increases your out-of-pocket expenses if you file a claim.
  • Most insurance companies offer multi-policy discounts when you bundle two or more insurance products. On average, consumers can save $295 per year by combining their homeowners and auto insurance with the same carrier. Bundling your policies can save you time and hassle when paying your bills and updating your account.

Whether you’re in the market for a new home or you’ve lived in your home for years, a licensed Obrella agent can help you find the policy that’s right for you. Give them a call and they’ll help you compare a variety of home insurance policies so you can choose the one that best meets your needs and budget.

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