How much does homeowners insurance increase each year

For many people, the thought of homeowners insurance increasing every year can be very worrisome. If this is a question you find yourself fretting about, here’s some research I completed to find a clear answer to this question.

So, does homeowners insurance increase every year? Homeowners insurance can both increase and decrease each year depending on a number of factors. Those factors include changes to your credit score, inflation, insurance claims, and lifestyle decisions. 

What Raises the Premium?

Credit Score Changes

As for credit, insurance companies use credit ratings to determine an individual’s premium. The idea behind credit-based insurance is that the homeowner with a higher credit score tends to take better care of the property and, more likely, can pay the premium on time.

If one’s credit rating decreases, their homeowner’s insurance most likely will increase. If this is the case, the homeowner’s insurance agent must send a notice of adverse action that stats the reason the homeowner’s premium is increasing and the credit reporting bureau the agent used to make that determination.

Inflation

When it comes to inflation, the cost of your insurance goes with it. Meaning, if inflation increases, so does your insurance. The reason behind this is that insurance companies must increase the amount they charge customers to keep up with their rising costs. You may notice an increase in your homeowner insurance each year simply because of inflation and the higher costs of doing business.

Insurance companies use the Consumer Price Index (CPI) as an indicator of inflation. When the CPI rises, insurance companies raise the premiums to match. If you are seeing constant rises in your premium, this could very well be the reason why. And if so, remember it is not your agent’s fault, it’s just the world we currently live in.

Claims

The most common cause of an increased premium is filing claims. Making a claim against your insurance policy can increase your chances of a higher premium. However, According to Bankrate, filing a single claim does not increase your insurance premium, but filing multiple claims within a three-year period does increases your premium because you are perceived to be a higher risk.

Each insurance company differs and maintains its own distinctive criteria for increased premiums. The best way to keep your premium from rising is to have minimal amounts of claims filed. Of course, an individual cannot control all the reasons a claim may need to be filed, but doing as much as you can will help reduce this chance.

Lifestyle Choices

Lastly, lifestyle can also increase one’s homeowner’s insurance. Lifestyle choices can increase your homeowner’s insurance premium through things like entertainment and pets. Entertainment items such as swimming pools, play sets, and trampolines have been known to increase premium rates because of the increased likelihood of injury.

The types of pets one owns, such as dogs, may also increase coverage. In addition, insurance companies may also refuse to insure animals they feel are high-risk, such as Pit Bulls, Dobermans and Rottweilers. Making any of these changes to the property during the year can increase your premium for the following year. This is also where those personal questions come in from agents that many think aren’t relevant.

Homeowner’s Insurance by State

Just as all things that deal with money, homeowner’s insurance will vary from state to state. The only thing that is consistent with each state is that rates fluctuate everywhere, every year. The main culprit to this has nothing to do with people, though. The main culprit is mother nature. Studies have shown that rates all across the nation have been increasing due to natural disasters, that have also increased in frequency and severity.

Every year, the United States faces tens of billions of dollars in damages caused by these disasters. And unfortunately, a large portion of the damage costs fall onto insurance companies. When insurance companies have to deal with the claims that follow these storms, they end up having to raise home insurance rates to help manage the cost.

Nearly two-thirds of all homeowner claims come from wind, hail and water damage. Regions like the Midwest experience these weather events the most, leading to higher insurance rate spikes.

According to The National Association of Insurance Commissioners (NAIC), their 2016 report shows homeowner insurance rates by state from 2006, compared to 2016. The top five states for the largest increase in homeowner’s insurance are Oklahoma, Kansas, Colorado, Nebraska, and Arkansas. The five lowest, not counting the District of Colombia, are Nevada, California, Alaska, (D.C.), Utah and Oregon. When it comes to the top five, this is largely due to the weather in the area.

The five states listed above are all located in an area called “Tornado Valley.” In Tornado Valley, high winds, hail, and heavy rainfall are very common and cause lots of damages and insurance claims.

Overall, the highest insurance rate spikes, from a percentage not dollar amount, come from Kentucky and South Dakota. These states are not part of the Tornado Alley, however, there has been an increase in the number of tornados in Kentucky and an increase in severity for the ones that do occur in South Dakota.

If you do happen to live in one of the states listed above for higher spikes in either percentage or dollar amount, you are not out of hope yet! Keep reading as we will get into how you can lower your insurance bill! 

Shop your home owners insurance every year. It’s good to make sure you have the proper coverage as well as the best price.Matt McWilliams

Can You Lower Your Home Insurance Premiums?

The short answer is, yes! It is possible that you, the homeowner, can lower your premium. When you receive your annual bill, you get the definitive word on whether your insurance rates increase for the year. At this same time, you can also see if you meet the few variables that actually do lower insurance premiums.

The most common variable is if you’ve reached a certain length of time that you’ve stayed with the same company. Often times, insurance companies give discounts to long-time customers. Another very common variable is if you bundle your insurance. Homeowners who bundle their insurance, mainly car and home, can get an additional discount.

However, if you do not meet the above variables, there are still some options you have to lower your bill. If your rates have increased and you need them lowered, consider increasing your deductible. Higher deductibles cost less in insurance costs, but you do end up paying more out of pocket.

You might also consider lowering your coverage levels. Doing so can put yourself at risk of paying more, but you end up pay less each year, in insurance. Just make sure you don’t lower your coverage so much that you can’t satisfy your mortgage lender or your deed of trust.

Another way to lower your homeowner’s insurance bill is to lower your credit score, view the list above about states homeowner’s insurance rates, shop around for a new insurance provider and review your lifestyle. Just as a poor credit score can increase your rates, they also have the probability of lowering your rates as well. If you practice good credit habits, like not charging close to your limits and only have a single account open, you can raise your score and lower that insurance bill.

If you aren’t sure you want to stay in the location you currently live, viewing the list above can give you an idea of what it costs in the locations you may want to live. Of course, there will be moving costs associated, but you could end up living in an area that will allow you to do more with the money you do have once there.

A very common practice for lowing the bill is shopping around for new insurance. If you already don’t meet your current provider’s discounts or aren’t close to meeting them, looking for a new provider with lower rates can save you a good chunk.

Lastly, reviewing your lifestyle and cutting out items that insurance deeps as making you high risk could save you a lot in the long run. Items listed above like swimming pools and trampolines actually raise homeowner’s insurance. If these items were taken out, you could lower your premium. The only one that would not make sense to cut out is pets. Pets are family and well worth the extra cost with the happiness they provide.

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Matt McWilliams

Hi there! My name is Matt and I write for Expert Home Report. I enjoy writing about everything related to home improvement, home tips and DIY. In my spare time, I'm either spending time with my family, doing a DIY project or learning a new skill.