Insurance policies can come with many perks, but all are locked behind premiums. These are the rates — or costs — you pay an insurance company in return for coverage. Generally, a homeowners insurance policy only remains active so long as the associated home insurance premium is paid. Bankrate’s guide provides an in-depth explainer of what a homeowners insurance premium is and how it works.

What is a homeowners insurance premium?

A home insurance premium is the amount of money a homeowner pays for active insurance coverage for a specified amount of time called the policy term. Most insurers offer flexible payment options, with the ability to pay your homeowner’s insurance premiums monthly, quarterly or annually.

If you have a mortgage, your mortgage company will often pay your homeowner’s insurance premium through your escrow account as part of your monthly mortgage payment. Your lender then pays the premium annually to your property insurer.

How are home insurance premiums calculated?

When you purchase a new home insurance policy, the insurance company will review various rating factors to determine your premium. Some are personal to you, such as your claims history. In states that allow it, credit history may also be used. Other rating factors are related to your home like the ZIP code, the year it was built, the square footage, its general condition and its proximity to a fire station, to name a few.

Ultimately, some homes and homeowners are riskier to insure than others. For example, it is less risky for the insurance company to cover a newer home or a homeowner with a good insurance score. It’s more risky to insure a home in poor condition or a homeowner with poor credit. The more risk you and your home carry, the higher your premium will likely be.

How much is the average homeowner’s insurance premium?

Based on July 2024 data from Quadrant Information Services, the average annual cost of home insurance in the U.S. is $2,230 for $300,000 in dwelling coverage. However, the price of home insurance varies based on several factors. As mentioned, you might pay more or less than the national average based on details specific to you and your home.

One of the biggest factors that impacts your premium cost is where you live. The cost of home insurance is different in every state. In general, homeowners who live in states with a high risk of severe weather or communities with high levels of burglary and vandalism pay the most for home insurance.

Here are the most expensive states for home insurance (based on average premium):

Most expensive states for home insurance	Average annual premium for $300,000 in dwelling coverage*
Florida	$5,533
Nebraska	$5,249
Oklahoma	$4,700

*As of July 2024

Here are the cheapest states for home insurance (based on average premium):

Cheapest states for home insurance average	e annual premium of $300,000 in dwelling coverage*
Vermont	$806
West Virginia	$952
Delaware	$966

*As of July 2024

What is the difference between a homeowners insurance premium and a quote?

A quote is how much a home insurer estimates you’ll pay based on the information you provide during the inquiry process. A premium is the final amount that the policy will cost.

When you shop for homeowners insurance, you’ll usually provide basic information to a homeowners insurance company about your property, the types of coverage you need and the amount of coverage you need. For instance, you might specify whether you need coverage for a pool or expensive personal property. You’ll need to provide your address since location greatly affects how much you pay for insurance. Depending on the insurance provider, you might have to answer specific questions about the home’s structure, such as the age and condition of your roof.

In return, the company will generate a homeowners insurance quote. The quote typically details what coverage your potential policy would provide and at what coverage limits. The quote should also show how much you would be expected to pay to keep the policy active. This is your premium. Keep in mind that premiums can vary between insurance companies, so it’s usually a good idea to shop around for insurance before purchasing a policy. Additionally, your quoted premium could change as the insurance provider finalizes your policy and verifies information.

Factors considered in your homeowner’s insurance premium

Below are common factors that impact homeowners insurance premiums. However, speak with your property insurer or insurance agent about your specific rating factors.

Coverage types and amounts

A main factor used to determine your homeowner’s insurance premium is the amount of coverage you need. Most property insurers have a valuation tool used to determine your home’s estimated rebuild cost if it were considered a total loss due to a covered peril. This coverage will appear as dwelling coverage, otherwise known as Coverage A, on your declarations page.

Many of the recommended limits for the remaining coverage types are typically calculated as a percentage of the dwelling coverage, which varies by carrier. These coverage types can often be increased independently if more coverage is needed.

For example, if your policy only includes $25,000 for other structures coverage, but you have a $45,000 detached garage that you need to insure, you may be able to increase the other structures coverage in your policy.

Location

Where your home is located is another important factor used to calculate your homeowner’s insurance premium. Insurance companies gather data about the ZIP code where the home is located, including the risk of crime, weather events and natural disasters. The more likely it is for you to file a claim in that ZIP code, the higher the premium could be.

How close you are to the nearest fire hydrant and fire station matters as well. The closer you are, the more you can save on your homeowner’s insurance premium. Generally, the lower your protection class, the more favorable your premium and the more property insurers are willing to offer coverage in the area.

Being closer to coastal waters can increase your home insurance premium. The closer you are, the more likely your home is to experience damage from a hurricane or flood. If you are in a high-risk flood zone, you may be required by your insurer to buy flood insurance, which is not covered by standard home insurance and is offered as a separate policy.

Structural elements of your home

Your home’s characteristics are used to determine how much dwelling coverage is needed. There are several factors considered that make up the build of your home, including:

• Age
• Construction type
• Square footage
• Condition of the home
• Quality of the construction material used
• Any improvements or enhancements (like upgraded kitchens or bathrooms)
• Number of bathrooms
• Foundation type

Installing safety features like storm-proof windows and doors, wind-rated garage doors, home security systems, automatic sprinklers and an impact-resistant roof may lower your homeowner’s insurance premium.