How much does homeowners insurance cost?

Homeowners insurance covers your physical home structure and your personal belongings. It provides financial protection for loss of or damages to the home and personal items in the event of fire, storms, vandalism and other covered events. Homeowners insurance also covers liability costs if someone is injured in your home, and it pays for additional living expenses if your home is temporarily uninhabitable. If you have a mortgage, your lender probably requires you to carry homeowners insurance.

Average homeowners insurance cost

According to the National Association of Insurance Commissioners, the average cost for a typical homeowners insurance policy is $1,249 per year nationally. These costs can vary quite widely by state, ranging from $706 in Oregon to $1,987 in Louisiana.

What determines the cost of homeowners insurance?

HO-3 policies are the
most common homeowners insurance packages.

First and foremost, the cost of homeowners insurance depends on the level of coverage you select. To make comparison easier, the insurance industry refers to the levels of homeowners insurance as HO-1 to HO-8.

The most basic and least expensive HO-1 and HO-2 plans cover only named perils, or risks, for the home, meaning that anything not specifically mentioned is not covered. An HO-3 plan has open-peril coverage for your home — only specifically named risks are not covered — and named-peril coverage for your personal possessions. Upgrade to a costlier HO-5 plan for open-peril coverage of both your home and possessions. HO-3 policies are the most common among homeowners in the U.S.

Other factors that affect the cost of home insurance include:

• The state and city where you live
• The types of coverage you buy
• The amount of coverage you purchase
• The type of home you have
• The deductible you choose
• Any riders you have on your policy
• Credit history
• Marital status
• Age of home
• Condition of roof
• Claims history for you and the home itself, even under previous owners
• Safety and security features in your home

Actual cash value vs. replacement cost

Most insurance companies allow the customer to choose between personal property coverage, which offers cash value for belongings that are lost or damaged, taking depreciation into account, or replacement value coverage, which covers the cost to purchase an item at today’s prices. A policy with replacement value coverage costs slightly more because the insurance company assumes, for example, that buying a new TV costs more than paying the policyholder cash for the depreciated value of the old TV.

Higher cost for higher-risk coverage

Homeowners who pose a higher risk to an insurance company will pay higher rates. Insurance companies consider some things more risky, such as certain dog breeds, a swimming pool or an in-home wood-burning stove, and increase rates accordingly. Certain other factors, like marital status and good credit history, indicate to an insurer that the customer poses less risk, which helps reduce the premium.

Bottom line: How much should I pay for homeowners insurance?

Having homeowners insurance is an essential part of owning a home. It not only protects you from financial loss if your home or personal property is damaged — it also covers certain costs if someone gets hurt on your property. The average policy nationwide costs $1,249 per year, which works out to just over $100 each month. To avoid paying too much, research available policy discounts, like those for home security devices and bundling homeowners insurance with auto insurance. Make sure your policy provides adequate coverage for the physical structure of your home, contents and liability. If you have savings to cover the cost of minor damages to the home, consider a policy with a higher deductible to save money on the premium.