Comparing home insurance quotes can be confusing, especially when two seemingly similar homes have vastly different prices. The truth is, insurance companies don’t just pick numbers; they calculate risk based on a variety of factors, including property details, history, and the likelihood of future claims. Understanding how home insurance is calculated can help buyers make more informed decisions and plan for costs beyond the mortgage.
For buyers considering different financing options, such as FHA loans, knowing how insurance will affect your monthly payments can be an important part of the picture. This Redfin article details what buyers can do to uncover important details before contacting an agent.
Points that insurance companies consider when setting premiums
Essentially, home insurance quotes are predictions. Insurance companies estimate how likely you are to make a claim and how much that claim will cost.
“Home insurance premiums are directly affected by the age of the home, its location, and the owner’s claims history,” says Dan Kerr, founder and CEO of ValChoice, a leading insurance analysis and rating services company in Bedford, New Hampshire. “For example, homes in areas prone to fire and other disasters are subject to higher premiums.”
Insurers also closely monitor past behavior. “An owner’s claims history impacts their premium amount as well, as the reality is that homeowners who have high claims tend to continue to claim more than other homeowners,” Dunn explains. “In short, the price of insurance is based on both the frequency and size of claims that the insurance company expects to charge you.”
Simply put, home insurance is calculated based on probability and cost. The older the home, the higher the environmental risks, or the more claims associated with the property or owner, the higher the expected payment. That expectation is reflected in our estimates.
Questions to ask before getting a home insurance quote
One of the best ways to avoid surprises is to gather the right information before requesting an insurance quote. Mike Deans, owner of Mays Insurance Agency in Burlington, Wis., recommends buyers ask their real estate agent specific questions before making an offer.
Mike recommends home buyers, especially in southeastern Wisconsin and northern Illinois, ask the following questions before making an offer.
Find out the exact year the roof was last replaced. This is important information in today’s home insurance market. Inspect your basement for water damage. Also, ask how often the sump pump turns on. If your sump pump is always on, it’s best to look forward to purchasing a backup battery for your pump. How often do you use your home’s furnace, water heater, and other systems? All systems must have been updated at least in the past 20 years. If your home has a wood-burning fireplace or stove, when was the last time you cleaned your chimney?It should be cleaned annually. If you’re interested in a home that’s far from your neighbors, be sure to ask your local fire department about its “fire class rating.” In rural areas, attending a local computer class can cost you hundreds of dollars each year in home insurance premiums. ”
These questions will help surface risk factors early on that will directly impact how your home insurance quote is written.
Impact of water risk on insurance quotes
Water damage is one of the most common and expensive home insurance claims, so insurance companies pay close attention to it.
“Water is home construction’s biggest enemy, and the risk of leaks and flooding can have a significant impact on a homeowner’s insurance premium,” says Michael Klein, CEO of The Heirloom Companies, a home improvement service in Lincolnwood, Illinois.
Insurance companies often flag homes with poor drainage, old plumbing, or basements that show signs of moisture (damp basements). Michael points out that some risks can be addressed during remodeling. “If you are considering a new installation, such as a bathroom, kitchen, or basement, be sure to include leak protection systems such as water flow devices, meters, sensors, and flow measurement technology.”
He also points out that improved drainage and improved materials can reduce future insurance claims. These improvements are important because they change the way insurance companies assess risk, which translates directly into how home insurance is calculated.
Why do I get completely different estimates for two homes?
When buyers compare quotes, it’s easy to focus on the final number without realizing how many little things add up behind the scenes.
A home’s claim history, even from a previous owner, can affect price expectations. Hidden water risks, outdated systems, or limited fire access can all drive up your estimate. Mike Deans’ checklist highlights many of these details, and Dan Carr’s explanation shows how insurers turn those details into predictions.
Taken together, this explains why similar homes can get wildly different estimates. Small differences in risk often lead to meaningful price differences.
final thoughts
By knowing what insurance companies are looking for and addressing risks where possible, buyers can know how much homeowners insurance they need to reduce surprises and approach homeownership with more confidence.
Home insurance quotes are not arbitrary. These are constructed from a combination of property details, history and potential future risks. Understanding how home insurance is calculated means asking the right questions early on and recognizing that estimates may change as more information becomes available.
