What Factors Affect Home Insurance Costs?

Posted On: June 18, 2019
Since lenders require proof of home insurance coverage for mortgages, prospective home buyers often turn to their real estate agents for guidance on the subject. If you’re a realtor, you need to arm yourself with the necessary knowledge to close a deal, and that includes understanding the top factors that affect home insurance premiums.

Home Insurance Basics

“What does home insurance cover?” a prospective client asks. You then proceed to tell them that, in general, home insurance covers their home in case of certain types of natural disasters—such as fires, lightning strikes, and even wind. The cost of home insurance coverage varies depending on a number of factors that we’ll detail below. However, homeowners can customize their coverage based on their budgets or upgrade it to cover “extras” such as detached structures, personal property, and accident liability, too!

11 Factors That Can Affect Homeowners Insurance

If one of your prospective real estate clients is apprehensive about getting homeowners insurance, it will compromise their ability to secure a mortgage—thereby compromising your ability to make a sale! So, here’s a quick list of major factors that may influence your clients’ home insurance costs.

1.   Attractive Nuisances 

“Attractive nuisance” is just a fancy way to refer to non-essential perks included or added to a property. These can include swimming pools, playgrounds, and more. Although attractive nuisances add to a property’s value, they also increase the likelihood of liability claims. Accordingly, homeowners insurance covering attractive nuisances comes at a premium.

2.   Construction Age

“If something happened to the home, how much would it cost to rebuild it?” That’s a big question insurance companies try to answer when calculating premiums. Older homes may be more susceptible to damage from the elements or simple wear and tear—and parts and components to repair them may be harder to come by, so an older construction may be costlier to insure. However, home improvements like roofing upgrades and plumbing overhauls may reduce the likelihood of a claim, which will reduce insurance rates.

3.   In-Home Businesses 

With the growing trend in remote work and work-from-home employment, an increasing number of people are running their businesses out of their homes. For insurance companies, this means there’s equipment, inventory, and electronics to cover—all of which don’t qualify as “personal property.” Home-based business-owners may need to consider an additional layer of coverage to protect their work-related property from theft, loss, and natural disasters.

4. Proximity to Emergency Services

Insurance companies really do consider every possibility when calculating rates—even how close a home is to the fire department or how far it is from a fire hydrant. After all, fires can completely obliterate a home in a matter of minutes, the sooner the firefighters can get there, the fewer damages an insurance company will have to cover.

5. Closeness to a Body of Water

It is not uncommon for homeowners insurance providers to charge extra for wind and hail or flood coverage—particularly in areas that are prone to hurricanes. Whether you and your clients find yourselves in one of those areas or not, the closer a home is to a body of water, be it an artificial pond or the coastline, the higher you can expect insurance rates to be. 

6. Wood-Burning Stoves

That wood-fired stove looks great on the property listing, but to the insurance company, it’s just another liability. Although wood-burning stoves may help lower gas and electricity costs, they may also raise homeowners insurance prices. Advise your clients to talk to their insurance agent about any fire safety measures they’re taking in regard to their wood-fired stoves. Something as simple as fire hydrants and stove inspections performed by licensed-contractors may help reduce their rates.

7. Location, Location, Location

From natural disasters to crime rates, every location has its unique challenges and risks—all of which home insurance companies use to calculate rates. Not only does the location of a home affect the likelihood of a claim, but it also affects how much it’ll cost to cover that claim due to labor costs, material, and regulatory costs in the area!

8. Claims History

Comprehensive Loss Insurance Underwriting Exchange or C.L.U.E. is to homeowners insurance as reporting bureaus are to credit. C.L.U.E. keeps policyholders’ claims histories dating back seven years. Most insurance companies used applicants’ claim histories to uncover the frequency and severity of a person’s prior claims, as they are closely correlated to the likelihood they’ll make a claim in the future. Just like a battered credit score, a bruised claims history may increase homeowners insurance rates.

9. Credit Score

Speaking of credit, homeowners’ credit scores may have an impact on the cost of insurance. This is because some insurance companies argue that there’s a correlation between a low credit score or bad credit history and the likelihood of making a claim. The good news is, some states such as California and Massachusetts have banned the practice of using credit as a factor in home insurance pricing.

10. Construction Materials

Insurance companies are all about reducing their own liability, so it’s unsurprising that they favor homes with “sturdier” construction materials. For example, wood and stucco are more susceptible to pest- or weather incident-related damage than brick and cement. Accordingly, homes built with what insurers consider more durable materials will likely be cheaper to insure—particularly in areas where the incidence of pest and weather-related claims are lower.

11. Deductible and Level of Coverage

Like most other types of insurance, homeowners policies come in a variety of coverage levels with a wide range of deductibles. A good rule of thumb for those in the home insurance market is that higher coverage equals higher premiums. And while their yearly premiums may be lower, policyholders who go for a high deductible, low coverage policy must be prepared to pay a sizeable amount if and when they make a claim.

Turn Real Estate Leads into Sales 

Positioning yourself as a knowledgeable and trustworthy thought leader in the real estate industry is vital to getting and keeping clients and referrals. You can empower yourself with essential knowledge about everything from homeowners insurance to property taxes in the areas you serve. As a matter of fact, by reading this blog you already are. Take your business to the next levels with additional continuing education courses from 360training.com.

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