You probably wouldn't buy a new car without checking out its gas mileage, so why buy a house without looking into insurance premiums first? It's not uncommon for buyers to forget about home insurance until the last minute before closing, at which point they rush to find a policy, sometimes going with the first company they contact.
Doing so can lead to paying more for protection than is necessary. It's smarter to keep your insurance requirements in mind as you look for a home, and it can serve as a useful filter. Consider the potential increase in your homeowners insurance premiums if you fall in love with a home but then find out it's located in a flood plain.
Insurance companies make their living by
assessing potential threats to their clients. Your home insurance premium will
be lower if it is deemed to be a lower risk. In order to calculate your final
cost, the following variables are taken into account:
Location
A real estate agent has stressed the
significance of location to you. However, it is also relevant to your insurance
agent. That's because your policy's premiums will directly correlate to the
level of risk associated with your home's location. Think how much greater the
danger of fire damage is when homes are constructed extremely close to one
another, and you can see why a home in a densely populated area will cost more
to insure. The distance of a house from fire hydrants and fire stations is a
factor in home insurance costs, so keep that in mind as you tour potential
properties.
If you live in a dangerous neighbourhood,
your location is also important. Your provider will increase your premiums to
cover the increased risk of theft, vandalism, and other acts of criminal
mischief. There is a correlation between the home's location and its
vulnerability to natural disasters like hurricanes and tornadoes. However,
standard homeowner's insurance typically does not cover damage caused by
floods, earthquakes, or mudslides, so you will need to purchase additional
policies to cover these.
Home
Your premiums may also be affected by your
home's design or construction. An insurance company can gauge your overall risk
level based on the age and material of your roof. Anything less than ten years
old is preferable, but newer is always preferable. For
"impact-resistant" roofing materials like steel and aluminium, some
service providers offer discounts of up to 10%. The electrical system of your
home will also be evaluated, with circuit breakers typically being less
expensive than fuse boxes.
The premium will also be affected by the
home's market value. Dwelling coverage is the portion of homeowner's insurance
that helps pay to rebuild your home after it is destroyed by a covered peril,
like a fire or a tornado. That number is calculated by multiplying the size of
your home in square feet by the cost per square foot of building materials in
your area (there's that location thing again). Your monthly premium will
increase in direct proportion to how high that number is.
Various
Other Factors
Homeowners insurance typically covers more
than just the house itself in the event of a disaster. It also protects the
homeowner's belongings and provides liability coverage in the event a visitor
to the home sustains an injury. There is a base level of coverage of $100,000,
but you may want to consider paying more per month to increase it to $300,000
or $500,000. You may want to consider increasing your contents coverage if you
have valuable possessions such as jewellery, artwork, or electronic equipment,
as payouts tend to be lower for these categories.
Your premium may increase if you own a
trampoline, a swimming pool, or a specific breed of dog.
Calculating
Your Credit Rating
Of course your credit history will play a
role in determining the terms of your mortgage. A lower interest rate is more
likely if your credit is excellent. However, it may come as a surprise to learn
that it also impacts the cost of your insurance.
Your credit score is one factor insurers
consider when determining your claim risk. Your premium will be less expensive
if you have good credit.
They will also look at your past claims.
They will charge you more for homeowner's insurance if you have a history of
filing multiple claims in the past. Not filing a claim within the past decade
could result in a 20 percent discount on your premium.
Workplace
discounts
The cost of building a house and
furnishing it can seem to rise with every decision you make, but there is some
good news. There are ways to reduce the cost of insurance that you should
consider as you shop for a new home.
Providers of homeowner's insurance offer
reductions in premium, or discounts, when certain aspects of a home, or its
occupants, result in a lower than average number of claims being filed. It's
common for insurers to offer premium discounts for safety devices like smoke
alarms, which can reduce your monthly payment by 5 percent. An alarm system can
get a discount of up to 15%. The amount of a discount varies not only by
provider but also by state (location, again).
You can save as much as 20% on your
premium by bundling your auto and home insurance policies with the same
company.
Increasing your deductible is another
strategy for decreasing your premium payments. In the event of a claim, the
first amount you will be responsible for paying is the deductible. When you
take on more risk by raising your deductible, your monthly premium is reduced
by the insurance company. You should, however, set aside enough cash in case
you need to file a claim to cover this higher deductible.
The
bottom line
Before approving your mortgage, your
lender will want to see proof that you have home insurance. Isn't it preferable
to know the total cost before beginning the process? Otherwise, it's like
buying that gas guzzler of a car: a good deal at the dealership might not seem
so great after a few fill-ups.
This is why it's important to factor in the
expected cost of homeowner's insurance when determining how much money you can
put toward a home.
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