Home Insurance Rate – What To Look For When Shopping

Home insurance is one of those things that, despite being a necessity, we don't often think about when shopping for insurance. And besides, it's so expensive that the risk seems too daunting — until someone you love or need lives to tell the tale. But what can you expect from an average home insurance policy? How much will it cost? How many potential risks does it cover? These are just some of the questions we'll answer in this article!

Home insurance rate – what to look for when shopping

What a lot of people don't know is this isn't just like any other type of insurance policy. The way that home insurance works is a lot different from any other type of insurance policy. And while there are similarities in the way that standard home policies work, there are also key differences. What you have to look for when shopping for your home insurance policy — and what impacts those rates — can be different depending on what kind of policy you get.

Each type of policy has their own unique features and benefits that come with buying it. And going down the list here will give you an idea of how coverage options play into the cost.

Coverage options for your home insurance rate

For standard homeowners policy, you have three coverage options:

#1 — Actual cash value (ACV): In this situation, the payout of your belongings will be based on their market value at the time of damage, rather than their original cost. Why is it important? Because this policy type also requires you to pay out 10% more than the repair costs. More specifically, you must pay a deductible amount. If you do not have enough savings or emergency funds available to cover the deductible amount, your policy can be voided! The upside to ACV is that it can save you money in the long-run if prices drop over time. You can save on your home insurance rate with this policy, but depending on the need and frequency of claims, it could cost you more in the long run.

#2 — Agreed value: This policy type has a payout that's based on the original cost of your possessions, rather than their market value. That means it's more accurate in its payout than an actual cash value plan. But at the same time, you'll pay more up front to have this coverage option.

#3 — Replacement cost: With replacement cost, you'll be paying for coverage that is based on what it actually costs to replace your belongings if they're destroyed or damaged beyond repair — whichever is higher. You'll pay the difference between the amount you have to purchase new items, and the total cost of replacements.

When looking for your home insurance policy, there are a few key factors to think about that affect each option. Consider these factors when deciding which type of coverage is best for you:

Your need for coverage : Do you need something a little more extensive than ACV to feel adequately protected? Or is ACV all you really need? If you're hoping for lower premiums, ACV may be the way to go. It will save you money over time if your belongings and their value increase in value in the future.

: Do you need something a little more extensive than ACV to feel adequately protected? Or is ACV all you really need? If you're hoping for lower premiums, ACV may be the way to go. It will save you money over time if your belongings and their value increase in value in the future. Your budget : Is it $10,000 or $100,000 that's keeping your financial life from having that extra savings cushion? If it's less, then going with ACV could help save you money in the long-run. However, if it's more, replacement cost coverage may be better for your family budget.

: Is it $10,000 or $100,000 that's keeping your financial life from having that extra savings cushion? If it's less, then going with ACV could help save you money in the long-run. However, if it's more, replacement cost coverage may be better for your family budget. Your insurance needs: Do you need home coverage for a second dwelling on your property? Or are you only covering the house itself? This can affect the type of policy and the cost that goes along with it due to additional dwelling costs. For example, if the rest of your property is covered by a separate insurance policy, you may pay more.

Homeowners insurance rates

Along with the specific coverage options above, a key factor that affects rates is your location. The amount of damage and how many claims you have on the same property will affect your rate as well. Keep in mind that if you don't have any claims, your rate will likely be cheaper than someone who has had multiple claims. But using this as an indicator can still be misleading.

In addition to your location, other factors that can affect your rates are how old your house is and how big it is.

With older houses, buildings, and appliances there is a higher likelihood of damage. So an older home with more claims has a greater risk as well. And finally, if the property isn't well-maintained then there's a greater possibility of damage, which will also increase risk.

So you could ultimately save money on homeowners insurance with all the things that lower your risk — and as long as you're willing to take on risks in return, having coverage for it all may be worth it. A good example of risks and coverage would be having life insurance. While it may not be the most appropriate for everyone, if you have dependents that depend on your income — if you're a stay-at-home parent, for instance — life insurance is likely worth it.

And the same rule can apply for something like a fire alarm system or smoke detectors. It may not be something that's absolutely essential to have, but if you're willing to take on the risk of damage from fire (and are able to afford both a homeowners policy and repair costs), then it may be worth having.

Conclusion

As you can see, homeowners insurance is a broad category that incudes many different covers, including physical damage coverage, fire and theft coverage, and liability and medical courtesy. And while each has different reasons for having it, all of these can affect rates and the amount you pay on it.

Paying more for this type of policy isn't necessarily a bad thing — after all, without it you run the risk of not having enough savings to replace your belongings if they're damaged or destroyed. You also run the risk of not being financially secure enough to cover replacement costs should the worst happen.