How much does home insurance cost and what are some of the factors that affect your premium?
As an Insurance Advisor, I get this question ALL THE TIME. When I first started my career, there was a good chance I could give someone a good estimate of how much their insurance premium would be. However, given new pricing sophistication you and your neighbor could have essentially the exact same home, yet pay EXTREMELY different premiums.
Having said that, as of early 2019 the average Home Insurance Premium in North Carolina is approximately $77 a month or $927 annually.
In North Carolina, we have lower average premiums than the national average. In fact, North Carolina homeowners insurance premiums are about $100 less than the national average.
Whether you are a first time home buyer, or you have owned your home for 40 years…making sure your home is properly protected can be stressful. On top of that, you want to make sure you are getting a “good deal”!
With the amount of money the “big” insurance companies pay for advertising on how much money they can save you on insurance, it could be very easy to overlook the factors that actually determine your insurance costs.
Let’s take a look at the factors that determine your home insurance rates, and how you can help save YOURSELF some money.
How Much Building Coverage Is Needed (Replacement Cost)
Your home has multiple values:
- Market Value (How much you can sell your house for RIGHT NOW)
- Tax Value (How much the government says your house is worth)
- Replacement Cost Value (How much it would cost to rebuild your house)
- Sentimental Value (The value you place on your home due to “personal” reasons)
While all of these values have meaning, the only one insurance carriers care about is the “Replacement Cost” of your home!
Understanding Replacement Cost is actually very simple…if your house were to be destroyed tomorrow, how much would it cost you to rebuild your house?
Thankfully, you don’t need to know how to calculate this value. The insurance carriers use standard replacement cost estimators to come up with this calculation.
Where Your Home Is Located (Location, Location, Location)
You’ve heard that Real Estate is all about LOCATION! Your Home Insurance Cost is as equally dependent upon location as how much you could potentially sell your house for. However, the reasoning is a little different.
Almost 50% of all home insurance claims are as a result of either Wind & Hail Damage (21%) or Fire & Lightning (25%)…both of which are HIGHLY attributed to LOCATION!
WHAT IS YOUR PROTECTION CLASS?
In North Carolina, there are approximately 10 different protection classes.
The protection classes are ranked from best (Protection Class 1) to worst (Protection Class 10) based upon how the responding Fire Department are graded and how close the nearest Fire Station & Fire Hydrant are to your home.
In general, the closer a home is to a “major” city the better the protection class…the farther out “in the country” a home is, the worse the protection class.
FROM THE BEACH TO THE MOUNTAINS
One of the things that makes North Carolina unique is that our state offers its residents the fun & sun of its beautiful beaches and the peace & tranquility of the Appalachian Mountains.
To that end, another unique thing about North Carolina is that insurance carriers have Home Insurance Policies that either INCLUDE or EXCLUDE damage to your home caused by Wind & Hail.
In general, if your home is not located in one of the 13 Coastal Counties then your policy INCLUDES Wind & Hail coverage. Given the likelihood that a home will be damaged by Wind & Hail (think about Hurricane losses) increases the closer you get toward the beach, insurance carriers will either EXCLUDE coverage or charge a substantially greater premium to account for the increased exposure.
While there are some carriers that are willing to include coverage for Wind & Hail in the beach area, most Homeowners in the coastal areas are forced to purchase a Wind & Hail Policy from their agent that is written through the North Carolina Joint Underwriters Associations (NCJUA).
If you are concerned whether or not your home insurance policy INCLUDES coverage for Wind & Hail…simply look at the Declarations Page of your home insurance policy. The State Of North Carolina requires that Insurance Carriers specifically list that “Wind & Hail Excluded” be on the Declaration Page of your policy.
What Type Of Home Insurance Policy Should You Choose?
As a society, we think nothing about spending countless hours choosing which cell phone data plan & carrier to go with. We spend countless hours looking for & evaluating the best TV or Cable plan to go with.
Unfortunately for most North Carolina Homeowners, there are only a few Homeowner’s Insurance Policy Forms to choose from.
Excluding Condo Risks & Renter’s Policies…there are really only TWO different Policy Options for Home Insurance:
- HE7 Form
- HO3 Form
Most of the carriers that you see advertising on TV all of the time only offer the HO3 Form.
In order to find a carrier that actually offers the HE7 Form…you will have to contact an Independent Insurance Agent!
While the State Of North Carolina Insurance Department regulates what MUST be provided in either form…there are some major differences between the two forms.
If I had to sum the differences up in one sentence (and I often do) I would say the following:
The HE7 Form is an HO3 on STERIODS.
Not all Home Insurance policies are created equal…take the time to learn the difference.
Credit History & Claims History Affects Premium
In the early 2000s, most insurance carriers relied on Claims History of both the home & the insured as the primary factors in determining whether or not the risk was worth providing coverage for.
Insurance Carriers rely on a C.L.U.E Reports to show any claims that have been filed by you or on your property.
The theory was that is an insurance carrier could see that a certain person filed more claims historically than someone else…or if a certain property showed a history of claims…that could potentially forecast future losses.
However, around 2005 insurance carriers starting also looking at the “credit” of the individual applying for coverage. Historical results showed that the better your creditworthiness was, the less likely you were (historically) to file a claim.
While the “credit” pulls from the insurance carrier is a soft credit pull (doesn’t negatively affect the credit score) the fact is that the better your credit is…the less you will pay for home insurance (all things being equal).
Confused? Choose The Right Insurance Advisor!
All of this can be confusing! After all, you just wanted to know how much Home Insurance Costs!
How To Lower Your Home Insurance Premium
- Make Sure Your Replacement Cost Is Accurate
Understand how much your home should be insured for, not how much the Market Value is
- Choose Are Area That Has A GREAT Protection Class (Classes 1-3 Are Great)
Simply stated, the closer you are to a Fire Department & Fire Hydrant, the better
- Coastal Properties Carry Larger Wind/Hail Premiums
Obviously, you are more likely to have a wind & hail related claim the closer you are to the coast…
- Have Great Credit
Statistics show that the better your credit, the less likely you are to file a claim
- Have ZERO Home Insurance Claims
The more claims you have, the more likely you are to file more claims
You don’t have to take this journey on your own. We always suggest finding an Independent Insurance Advisor to help guide along the way.
Of course, we think that we are the BEST Advisors in the business, so if you would like some more help choosing the right Homeowners Insurance, please contact us to get your homeowners insurance quote started