Factors Impacting Homeowners Insurance Rates

Find Cheap Homeowners Insurance Quotes in Your Area

Currently insured?
{"id":6,"isAgeFieldVisible":true,"isInsuranceTypeFieldVisible":true,"isInsuredStatusFieldVisible":true,"buttonText":"Find Insurers","customEventLabel":"","defaultZip":"","defaultProduct":"home","quoteWizardEndpoint":"https:\/\/quotes.valuepenguin.com","trackingKey":"_factors-impacting-homeowners-insura","tier":"default","title":"Find Cheap Homeowners Insurance Quotes in Your Area","vendor":"vp","style":null}

This guide explains how your homeowners insurance rate is calculated. Consumers can still walk into the office of an insurance company or speak to an agent on the phone to get a quote, but the advent of the Internet has changed things. Now, you can calculate accurate quotes online, which is the best place to start when shopping for home insurance.

Each online quote calculator takes roughly five minutes to complete. You will know most of the information required for the companies to create a custom quote for you. Some things you might not know off the top of your head but can easily figure out. We’ve broken down the information the calculators ask for below and explained why they need it.

Estimated Replacement Cost: the most important number to get right

Here we detail a few things that affect how home insurance companies calculate your rates, including replacement cost of your dwelling to the area's claim history

The most important number and piece of information when determining the cost of homeowners insurance is the estimated replacement cost of the home. The estimated replacement cost is the amount of money it would cost to build the exact same home where it stands now. This is different than the market value of the home, which includes other things such as the value of the plot of land. Every online quote calculator will ask you for this number.

What if you don’t know that number? That’s fine. Most people don’t or they think they know but are mistaken. Some companies, such as State Farm, have a tool within their online quote calculator to help customers determine the estimated replacement cost of your home. 

Online tool or not, you should consider hiring an appraiser to visit your home and give an estimate. An appraisal is often required anyways and companies typically send their own appraiser to estimate the replacement cost. Even if an insurance company sends an appraiser, it is still beneficial to have your own independent estimate for comparison. Most appraisals cost between $200 and $400 but they can be as high as $500 or more, depending on how far the appraiser must travel to your property. Getting your own assessment gives you a basis of comparison when your home insurance company comes back with their cost.

Something to note when using the online calculators: Say you input $200,000 of replacement cost coverage needed into the a calculator. When the calculator creates your quote and shows a breakdown of your coverage, you might notice the replacement cost covered might suddenly be greater than $200,000. The reason is the calculators automatically factor in estimated demolition and disposal costs as well as others you would incur if your home was destroyed and you needed to rebuild it.

The Deductible You Choose

One of the ways you can significantly impact the cost of your premium while using a quote calculator online - increasing your deductible. Choosing the right homeowners insurance deductible can be tricky; you need to balance a short-term cost you can afford (the deductible) and the long-term cost of a policy (the premium) to get the most out of your home insurance. The higher the deductible you choose, the lower the cost of the premium quoted. We recommend visiting our guide that explains how to choose the right one for you.

Other Information Used to Calculate Your Quote

Calculators typically give you the option to provide your social security number, which companies use to check your credit and insurance score. The credit check is called a “soft pull” and is a less detailed credit check than most and will not affect your credit score. your insurance score, like your credit score, is determined by your credit report and used by companies to calculate your premium. Scores and the frequency of claim filings are related so insurance companies use the information to determine the appropriate cost of the premium each policyholder owes. You will eventually need to provide your social security number if you apply for a homeowners insurance policy.

Additional information about the insured home is used as well. Much of it is listed in the box with this guide. Some other things that have an impact on the cost of your premium are the square footage of the home and the type of roof on a home. Generally, the larger a home, the more structure there is to damage and more it will cost to repair. For example, each company rates different roofs and materials differently based on the life of the material and the likelihood wind or hail will damage them. Roofs made of clay and concrete can last as long as 75 years, while asphalt roofs will last about 20 years. Because the clay and concrete last longer, and are more resistant to natural elements like wind and hail, they're correspondingly cheaper to insure for companies.

The square footage of the home and the type of construction also impact the cost of a homeowners insurance premium. For example, a steel beamed, pour concrete home is less likely to burn than a wooden frame structure so it will cost less to insure (assuming the homes are in the same location and of the same value).

Even Fido can impact how your insurance company determines your quote, especially when it comes to the personal liability coverage of your policy. There are certain breeds that have generated more homeowners claims historically, in insurers' experiences. These types include pit bulls, doberman pinschers, and german shepherds, etc.

Costs that Quote Calculators Do Not Include

Almost all of the quote calculators online generate some version of an HO-3 policy form, the most common type of policy purchased. For most people, this is an adequate amount of coverage and protection, and the quote delivered is going to be close to the premium they can expect to pay. This will not be the case for many.

Standard home insurance policies do not cover damages or loss due to earthquakes, flooding or sinkholes. You might need a separate policy to protect you and your home from one or more of those perils. Even if you don’t think so, you might need one of those coverages which can be expensive and, in some cases, dramatically increase what you can expect to pay in premiums to protect you home. Reference our guides specifically to those perils to determine if you need coverage.

Chris Moon

Chris is a Product Manager for ValuePenguin with years of experience in addressing critical questions about mortgages and homeowners insurance. He spends his time evaluating insurance providers and policy features to understand where consumers might find the most cost-effective coverage. Chris has contributed insights to the New York Times and many other publications.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.