Fire-resistant Home Improvements: Enhancing Your Insurance Eligibility

Fire-resistant Home Improvements: Enhancing Your Insurance Eligibility – Whether you’re buying a new home or already own your home, home insurance is usually part of the journey. Most standard policies cover the structure of your home, personal belongings and additional living expenses if you experience a covered event. This usually involves bad weather and burglary. Most policies also offer liability protection in case someone is injured on your property.

Although there are no laws mandating homeowners insurance, almost all mortgage lenders require it. Premiums vary by state, and the average annual cost of home insurance in the U.S. is $1,544, according to the Insurance Information Institute. Various things can affect your premiums. Here is an overview of 10 factors that could affect the cost of your home insurance.

Fire-resistant Home Improvements: Enhancing Your Insurance Eligibility

When determining your rate, insurance companies evaluate your perceived risk—or the likelihood that you’ll file an insurance claim in the future. If you live in an area prone to adverse weather, you’ll likely pay more than a homeowner who doesn’t have these risk factors.

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In California, for example, many insurers charge an additional fee if your home is located in a high fire risk area. These surcharges can range from 15% to more than 300%, according to the California Department of Insurance. In hurricane-prone Florida, the Insurance Information Institute predicts the annual cost of the average home insurance policy will be more than $4,000.

Most insurers will look at the size of your home when calculating your premium. This makes sense – if you file a claim, it will cost them more money if they have to repair or rebuild a larger space. As such, more square footage usually means a higher premium.

A small home is not the same as a small house. The latter is usually between 100 and 400 square feet. Tiny homes generally need a mobile/manufactured home insurance policy rather than standard homeowners insurance.

Most insurers will perform a home inspection before you get or renew your policy. This usually includes an inspection of the exterior, along with the home’s electrical, HVAC, and plumbing systems. If the inspection reveals significant problems, you could receive higher insurance premiums. An insurance inspection is not always required, but it is common for older homes and financed homes.

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Speaking of older property, insurance for a home that is over 30 years old is usually 75% more compared to a new home. In some cases, insurance companies may require you to purchase special coverage or add certain insurance beneficiaries or endorsements. Deterioration, safety issues, materials and historical restrictions can increase your premiums.

If you own your home outright, you can decide for yourself how much home insurance you need. The level of risk you’re willing to take—and the amount you’re willing to pay in premiums and deductibles—is entirely up to you. It’s a different story when you have a home loan. Most lenders require you to have at least enough home insurance to cover the mortgage. Every lender is different, so make sure you understand their minimum requirements.

If you own your home outright, you can pay the premium directly to your insurer. If you have a home loan, you may have the option to include the insurance premium in your monthly mortgage payment. These funds are held in an escrow account. When your premium is due, your lender will pay it for you on your behalf.

Generally, the stronger your coverage, the higher your home insurance premium will be. You can base the amount of coverage on how much it would cost to replace or repair the structure of your home. (This number is different from the value of your home, which includes the land your home sits on.) You can estimate the cost of rebuilding by looking at the square footage of your home and the cost of materials and labor. For personal assets, make a list of what you have and calculate the total value.

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You may choose to add additional liability, personal property or condo coverage to beef up your policy. For things not covered by standard policies, such as floods, earthquakes and sinkholes, additional policies will be required.

The insurance deductible is the amount you pay before your insurer pays its share. A higher deductible usually means a lower premium (and vice versa). If you decide to add flood or earthquake insurance, those policies will likely have their own separate deductibles.

If you do decide on a higher deductible, it’s a good idea to have that amount on hand if you need to file a claim. This is where a strong emergency fund is especially important, so you don’t have to worry about out-of-pocket repair costs before your insurance kicks in.

If you or previous homeowners have made home insurance claims in the past, you may encounter higher premiums. Again, premiums are based on how risky it is to insure your home. Previous insurance claims can be considered an indicator of risk.

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Not all types of homeowner’s insurance claims affect premiums in the same way. One 2021 study found that a single weather-related claim increased premiums by an average of 16%. Fire-related claims were at the other end of the spectrum, increasing premiums by 29%.

Inflation, labor shortages and supply chain issues continue to make headlines. In June 2022, the price of building materials for residential buildings increased 19% compared to a year earlier, according to the National Association of Home Builders. Since renovation costs play a role in your home insurance premium, you may see your rates rise to keep up with higher prices.

In 2021, the national average home insurance premium was $1,398 a year, according to the Insurance Information Institute. That number increased by more than 10% in 2022.

Insurance companies in some states will consider your credit, but the information they check is not the same as the credit score used by lenders. Instead, they use a credit-based insurance score, which should help predict your likelihood of filing an insurance claim. This is one of many factors that can affect your premium.

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Taking steps to improve your credit could lower your home insurance rate. This includes paying your bills on time, reducing your debt and limiting the number of new credit accounts you apply for.

Having certain features on your property could increase your perceived risk. If you have a trampoline, pool, hot tub, or dogs, for example, home insurers may worry that someone is more likely to get hurt on your property. Because of this, they may require you to purchase additional liability insurance, which will cost more.

Many different factors go into the cost of insuring your home. Understanding what they are (and how to use them to your advantage) can help you reduce your overall spending. Improving your credit could potentially get you a better rate. By signing up for a free credit monitor, you can stay on top of what’s on your credit report.

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