Three Reasons Why Location Influences Home Insurance Rates

Location. Location. Location. We’ve all heard this common phrase in real estate and understand it can affect the market price of homes. What many don’t know is location also impacts home insurance rates.

When determining your homeowners insurance rate, insurance companies take many factors into consideration. Each insurer has its own underwriting criteria and factors that influence rates. While some criteria are standard, some vary from one company to the next. For example, one insurer may prefer new construction. Another may choose not to insure homes built using certain materials, such as log homes. The insurer is assessing risk. Each factor reviewed helps the insurance company determine your home’s risk level. This directly correlates with your home insurance rate.

So, how does location play a role in risk? According to Bradley Rynearson, a sales manager at SelectQuote, everything from state regulations to weather to your home’s proximity to a fire station can alter home insurance rates.

“Homeowners insurance is written on total replacement cost,” explains Rynearson. “If something should happen to your home and you file a claim, you get a new version of what you lost.”

Insurers are not only looking at the risk of damage to your home, but also at the total cost to rebuild your home should a tragedy occur.

Construction Costs and State Regulations Influence Replacement Costs

Insurers look at many factors that impact the cost to rebuild, including types of construction materials and methods of construction. For example, if you live in a 100-year-old brick home, the total replacement cost for your house will be more than that of a starter home built with wood framing. Not only are houses no longer built in the same fashion as your historic home, but brick is a more expensive material than wood. All these factors come into review when determining your insurance rates.

In addition, each state has its own set of regulations that influence the marketplace. In Texas or Alabama, construction materials are plentiful and you can build houses very affordably. However, because replacement costs are lower doesn’t mean you’ll automatically see lower rates, many other factors are considered, including weather risk.

“We’re a big country. Each state has its own set of regulations that influence the marketplace,” said Rynearson. “California is highly regulated and it’s more expensive to build there. Whereas in Texas or Alabama, construction materials are plentiful and you can build houses very affordably.”

Severe Weather and Natural Disasters Increase Claim Risks

Rynearson offers Texas as a great example of one state where insurance rates can range based on a home’s location. “If you look at the state of Texas, you will find some of the most reasonable replacement costs in the country. A house close to the gulf in Houston, however, is very expensive to insure because of the wind and hurricane risk. The Dallas area is also a higher risk because of hail. If you go out to Austin, where the weather risk is much less, their rates are more reasonable.”

These weather patterns make a difference. “In the Midwest, we deal with a lot of wind, hail, tornados and extreme temperature differences,” continues Rynearson. “Coastal states, including California, deal with wildfires and mudslides. Texas and Alabama encounter hurricanes. Homes in Arizona can be incredibly low cost to insure because of the desert environment.”

If you live in an area prone to flooding, this can also increase your insurance needs. While not typically covered under your standard homeowners insurance policy, flood insurance is often required by lenders for anyone buying a home in a designated floodplain or high-risk area. Flood insurance can be purchased by your insurance agent through FEMA’s National Flood Insurance Program.

Your Proximity to Protection Matters

When buying a home, you may think of the sirens coming from a nearby fire station as a negative. While the noise may be a minus, your proximity to a fire station serves as a plus on your homeowners insurance. If you live in a neighborhood with a staffed fire station within five miles and a fire hydrant within at least a quarter mile of your home, insurers consider you in a better protection class, offering more favorable rates.

How to Lower Your Home Insurance Rates

With all of these factors in mind, you can take steps to lower your rates and find a policy right for your home and family.

  1. Keep your home up-to-date. Ensure your heating and cooling, roof, electrical and plumbing systems are all within their life-expectancy windows. Updating these items can result in more favorable rates.
  2. Install weather-mitigating materials. If you live on the coast where hurricanes are an issue, consider installing garage doors rated to withstand hurricane force winds or impact-resistant windows. In the Midwest, you may consider shingles that are hail resistant or backup systems to your sump pump. These home improvements can go a long way in lowering your insurance costs.
  3. Shop around. Every family, house and street is different. So, it is important to find the right fit. You can benefit from working with a company that partners with a wide range of insurers and gets a variety of quotes to find the best homeowners insurance policy for you.

Determining your home insurance rate is a complex matrix of considerations and risk factors. Your rates may vary based on region, state, city, and even neighborhood and street. By better understanding these factors, you’re able to take control, reduce your home’s perceived risks and secure a policy that’s right for you.

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