How Much Should I Be Paying for Homeowners Insurance?

Research and comparison shop to pay just enough and not too much.

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Purchasing homeowners insurance is part of owning a home. Even it it's not required by a lender because you own the home full and clear, your home is one of the most valuable investments you have and one of the few that insurance can partially protect. What you pay depends on where you live, the characteristics of your home and the insurance company you choose. Know what you should be paying and make sure you don’t overpay by doing your homework at the time of purchase and every year you own the home.

Understand Insurance Requirements

Start by gathering factual information. When setting your coverage rate, insurance companies look at the age and condition of the home, construction materials, distance to the nearest water source, replacement cost and the claims history of your home and other homes in your area. Use the most current home appraisal, check with your real estate agent or a building contractor to get current construction rates and -- if you haven't lived in the home for long -- follow the advice of the Insurance Information Institute by getting a free Comprehensive Loss Underwriting Exchange report, which gives you the home's claims history for the past seven years.

Make Policy Decisions

Check with your lender to get minimum insurance requirements for your home. Although minimum requirements satisfy your lender and are a good starting point, you should pay what it costs to protect you and your home. Because lender requirements often focus only on basic hazard insurance -- insurance for your home -- but you should think about purchasing a policy that covers personal property, loss of use, personal liability and medical bills. Determine your needs before talking to your insurance agent about a level of coverage that is right for you.

Comparison Shop

Check average insurance costs for your state and local area. Home insurance rate reports reveal average rates for your state, county and sometimes city; show whether insurance rates for your area are increasing or decreasing; and include tools such as an insurance calculator that can help you determine whether your choice of insurance coverage is appropriate. Get quotes from three or more insurance companies for identical insurance coverage and compare these rate quotes against one another and against the average rates for your area.

Explore Discount Options

Avoid paying too much for homeowner insurance by getting the highest deductible you can comfortably live with and filing claims only when necessary. Too many claims -- and that can be as few as two or three -- means higher premium payments and puts you at risk for cancellation. Take advantage of every available discount option your insurance company provides. For example, the Insurance Information Institute says that purchasing home and auto insurance from the same company can reduce costs by 5 to 15 percent, adding disaster prevention and security-enhancing devices can reduce costs by 15 to 20 percent and age-related discounts -- especially if you are retired -- may reduce costs by up to 10 percent. And keep your credit score high: Although insurance companies do not provide rate discounts for good credit, your credit rating will affect the price you pay for insurance.