ReSET Blog
Blog · May 25, 2022 · AUTHOR: Darwin Pelea

How Much Should You Pay for Homeowner's Insurance?

If you're looking to protect your home, you're probably already aware that a home is one of the most significant investments you'll ever make. Unfortunately, it's also one of the most vulnerable - as we know all too well in the aftermath of a powerful storm or damaging incident. To ensure you're adequately covered in the event of a loss, you can check several factors to ensure you're getting a fair deal on your insurance premium: The value of your home, the area you're insuring, the risk posed by your neighbors, the likelihood of a loss, and more. But how can you tell if you're getting a fair premium for your home insurance? Calculating your home insurance premium is a simple process once you know where to start. Follow along for a step-by-step guide, and you'll be on the right track to getting a fair rate for your coverage.


What factors should I consider when calculating my home insurance premium

Calculating how much homeowners insurance to buy requires analyzing the value of your home and what types of coverage you want in place. Here are some factors to consider when calculating how much homeowners insurance to buy:

1) Location and Age of Your Home:

The location and age of your home are two crucial factors that determine the amount of your homeowner's insurance premiums. The older and more valuable your home is the higher your premium.

2) Replacement Cost:

The cost of rebuilding your home after a fire or other disaster is called its replacement cost — and it's what your insurer will pay if something wrong happens to your house. The lower your deductible (the amount you must pay out of pocket before the insurance company pays), the more expensive your premiums will be.

3) Construction Type:

Your home's construction type also plays a role in determining how much a homeowner's insurance costs. For example, if you have a brick home or other solid construction material, there is not as much risk of water damage or fire as there would be with a wooden frame home or other less durable construction. Therefore, these homes tend to cost less than others to insure.

4) Level of Coverage and Deductible:

The amount of coverage and deductible will affect the cost of your policy. A higher deductible means that you'll have to pay more out-of-pocket in case of a loss, but it also means that your premiums will be lower.

5) Your Home's Square Footage:

Your home's square footage is a significant factor in determining how much you'll pay for homeowner's insurance. For example, a 1,500-square-foot home may cost $1,000 per year in premiums, while a 2,000-square-foot house could cost $1,350 per year.

6) Personal claim history:

Any claims against previous homeowners on your policy will increase premiums for future policies. If someone filed a lawsuit against them in the past, that company would probably not want to risk letting them back into their network for fear that they may file another claim in the future. They may also charge higher rates due to this reason.

7) How Many Times to Live There:

If you have been living in the same place for a long time and don't plan on moving anytime soon, this won't affect your premium much. But if you are going to be moving soon and buying a new home, this could affect how much money you pay for homeowner's insurance.

Tips on how to calculate how much I should pay for homeowner's insurance

Here are some tips on how to calculate how much you should pay for homeowner's insurance:

1) Know what type of coverage you have

It's important to know if your policy provides full replacement value or actual cash value coverage. If it's the actual cash value, then the insurance company will only pay for the present value of your home minus depreciation (or wear and tear). If it's full replacement value, the insurer will reimburse you up to replacing your home with like kind and quality materials (i.e., new appliances, carpeting, etc.).

2) Know the value of your home

When calculating how much to pay for homeowner's insurance, it helps to know the value of your home — its purchase price and its replacement cost if destroyed by fire or another natural disaster. You can find this information by contacting a local real estate agent or appraiser specializing in residential real estate appraisals (many appraisers offer free services). If you have an older home with little equity, it might be worth taking steps to boost its value before lowering your homeowner's insurance premium. For example, adding new landscaping or upgrading the kitchen could help increase the value of your house — and thus decrease your annual insurance premium.

3) Calculate your homeowners' insurance risk

One way to calculate how much you should pay for homeowner's insurance is by calculating your homeowners' insurance risk. First, list your assets and what they are worth. For example, does your home have significant equity? Do you have a lot of other valuable items in your home? If so, this could increase the cost of your homeowner's insurance. Next, determine the value of your assets against the probability that they will be lost or damaged.

For example, if you own a car worth $5,000 but have a 1% chance (1 in 100) of being stolen or damaged each year, it would be worth $50 per year. If you have valuable belongings like jewelry or art and want to ensure their safety from fire, theft, or flood damage, you would need to purchase a more comprehensive policy. However, if you live on the coast and have property near the water or a high-risk event zone like New Orleans, then you might need to purchase flood insurance which can be pretty expensive depending on where you live.

4) Determine your neighbors' risk

The probability of a natural disaster occurring in your region will affect the cost of homeowner's insurance. If you live in an area with low natural disaster risk, like Florida, you should expect to pay less for homeowner's insurance.

5) Add it all up

To get a rough estimate of what your insurance might cost, you should add up the value of your home, its contents, and any additional buildings or structures on the property (such as garages, sheds, or other outbuildings). Then factor in your deductible. Use this number to calculate how much coverage you need.

Final Thought

The best way to determine what you should be paying in homeowner's insurance is to get the best insurance. The better your deductible, the cheaper your monthly premium will be. Research the rates at different insurance providers and choose the most affordable one that meets your specific needs. Find more information about homeowners insurance in this Quick Guide on Homeowners Insurance. Is your house part of HOA? This article will definitely help you find information if you need Homeowners Insurance.

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