The real trick to having the most control over your homeowner insurance premium costs is to start considering the factors of insurance costs before you even start the home buying process. Most people begin searching for a house with the right number of bedrooms and bathrooms without the first thought of insurance premiums until it’s time to close the deal. Obviously, you wouldn’t choose not to buy your dream home based on a couple hundred dollars in insurance premium. However, if you’re after frugality and will do some extra work during the home buying process, the following tips will make all the difference.
Location, Location, Location
Similar to the fact that a home’s cost is largely based on the location, your insurance rate is partially based on location. You probably won’t be shopping the entire continent for the best home, so work within the parameters of the area you want to be. Use crime statistics to help with the search. Even if you live in a state with higher-than-average premiums, you can find places to call home not as highly affected.
Newer vs. Older
Many insurance companies offer discounts rates when you’re purchasing a new (as in just built) home. The reasoning is that new structures are generally constructed with the latest safety codes. If you’re deciding between a new construction and a home more than ten years old and they’re similar in size and cost, choose the newer one.
Smaller vs. Bigger
The cost of homeowners insurance is based on the cost to construct your house, not the value. Once you wrap your head around that factor you will understand that you aren’t looking for the cheapest house in terms of low insurance costs, you are looking for a home that’s cheaper to buy but rather cheaper to rebuild. Often you can control this piece of the equation by choosing a home that’s smaller over a bigger home. Obviously, you have to consider your family’s needs in this question, but ask it anyway: “Do I really need 4200 square feet or will we be just as comfortable in 2400 square feet?”
Quality vs. Quantity
This is somewhat of a “part B” to the smaller versus bigger section. It’s a bit trickier though, which is why it’s a separate section. The square footage will impact replacement cost due to the amount of construction materials needed to replace or rebuild. However, insurance is based on indemnification, a broader term than reparation or compensation. To indemnify your total loss of your home, your insurance contract will make you “whole” again so your house is built to the same size and standards that previously existed.
There’s a balancing act to this section. Higher quality construction will increase the replacement cost (and premium). However, it could balance out because the safety features of the quality construction (like steel, brick, or concrete as opposed to timber) ensure a lower likelihood of loss, reflecting a lower insurance premium. On the other hand, if trying to decide between a fully restored Queen Anne style historical home and a standard brick ranch, your brick ranch will have far less costs associated with rebuilding. Trying to reconstruct 100 year-old scrolling woodwork and extensive ironwork isn’t exactly cheap.
Remember: This is very dependent on the type of homeowner form you choose. Some forms do not give indemnification; some are based on ACV (actual cash value). In addition, it is also dependent on covered loss.
This is a tricky one. Often a person searching to buy a house will be likely to go through loan companies first to discover how much he or she can borrow. Going through a mortgage broker results in quite a number of inquiries for bank loans. Not only does it affect your score, but it causes more entries on your history information, which is what insurance companies check for rating purposes. Applying for mortgages, car loans, private loans, or other large loans are considered ‘hard hits’ on your credit report, which lower your score. (Soft hits are things like insurance company’s inquiries and inquiries when you’re not asking for any credit.) The busier your history is with hard hits, the higher your premium. If you plan on buying quickly (like within 30-60 days), try locking in a homeowner quote first.
Even if you don’t know the exact home you will purchase, you can give an address of a home that looks similar in size, structure and location to get an idea. Additionally, some insurance companies won’t run credit or claims history until they’re sure you’re buying the policy to minimize their costs. Therefore, ask your insurance agent to finalize the quote and run all your reports up front. It’s also a way to lock in an estimated insurance premium with less activity on your credit versus waiting until four or five banks have made credit inquiries.
Keep in mind that while many homeowner contracts are fairly standardized, they can greatly differ in how you’re compensated for covered losses. In addition to the standardized homeowner form, there are many endorsements and options that can be included (or excluded) to fully customize your protection and allow you to balance the cost of the premium with the coverage you want. Searching for a home based on insurance costs may seem extreme to some; but when you live in a state or region with high premiums, it can make sense to at least consider it when choosing your home.
-Desiree Baughman, InsuranceQuotes.org, @DesireeBaughman