A New Buyer’s Guide to How Home Insurance Rates Are Determined

Imagine your home being razed to the ground, wiping out every possession you had. Or a neighbor passes by at your compound on a rainy afternoon, slips, falls, and suffers a serious injury. If you have homeowners insurance, you won’t have to pay for these costs from our pocket. But the cost of such a policy depends on many factors.

  • Your Location Matters a Lot

Insurance companies charge lower rates for homeowners living in places with a low overall number of claims. On the flip side, they charge higher rates to people who live in great-risk areas. For example, if you live in areas where tornadoes or wildfires are common, you will pay higher premium rates. For areas with high risks of burglaries, expect to be charged higher.

If you want to have better rates, make sure you buy a home in a neighborhood where the crime rate is low. Also, try to avoid areas that are traditionally prone to catastrophes. Finally, purchasing a home located close to a source of water and within a service area with a reputable fire department will reduce your policy cost.

  • The Value of Your Home

Another factor that affects the cost of your insurance is the value of your home. This is the cost that it would take to have your home replaced in case it is destroyed completely. If your home is valued at $2 million, for instance, it will cost more to replace than a home whose value is $500,000. The policy won’t factor in the value of the land on which the property sits, just the property itself. Also, your premiums are likely to cost more if you are insuring lots of expensive items like furs, jewelry, and guns among other things. Prepare to pay high insurance costs if you own a trampoline or swimming pool.

  • Home Security And Safety

You can cut your insurance costs by installing home security systems and adding extra protection measures to you and your family as well as your home and belongings. Things you will want to do to revamp the security of your home is replacing your old locks with new ones and also installing a home security system that’s monitored.Additionally, consider installing a smoke detector, an alarm system, and other protection devices to further bring down your insurance costs. At the same time, you should try to avoid keeping that rattlesnake as these can add to your insurance cost.

  • Home Remodeling

It is common for people to remodel their homes once they have moved in. This includes updating the bathroom, kitchen or doing other improvements to the house. This is not an entirely bad thing, except that you should ensure you let your insurer know of these updates.

Building a home is expensive to the insurance company just like it is for you in case you suffer a loss. Construction and material costs will be factored in, and will automatically increase the premium that you pay. But at least you will be sure that your coverage is up to date.

  • Your Credit History

Insurance companies love individuals with a sound financial management history. Most states have allowed insurance carriers to peg their rates on credit scores. According to the National Association of Insurance Commissioners, in states which allow this, 85% of insurance companies that provide homeowners insurance use the credit reports of customers as one factor in determining premium rates.

Also, worth noting is that your credit-based insurance score isn’t the same as your ordinary credit score. In deciding this, Langs High Net worth Insurance, for instance, takes into account your outstanding debt, your payment history, the mix of credit reporting, length of the credit history, and pursuit of new credit among other things. You will have a chance of better rates if you score good marks. Besides, insurance companies prefer those who don’t show a history of previously filing claims. They will give discounts to you if you insure your car and home together.


If you’ve been wondering how insurance companies arrive at homeowners insurance premium rates, then now you know why. Understanding the factors that affect your insurance cost enables you to make some adjustments so as to be in the good books of insurance companies. For example, buying a home in an area with a high crime rate or propensity for a natural disaster will mean higher insurance rates.  Your negotiation skills can also help you get a better rate.

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