In the real estate world, location always stands tall as the key factor in selling a home. But it also stands tall as one factor that has a major effect on homeowners insurance. HomeInsurance.com recently checked just how large an effect location can have in setting premiums.
The website compared average home insurance premiums for the same 2,000-square-foot, three-bedroom, two-bathroom brick home in suburbs of 10 major U.S. cities to determine its Home Insurance Pricing Index in the U.S. Suburbs. What it found was startling: Premiums could be up to three times as expensive, depending on location.
Among the suburbs evaluated, the most expensive home insurance premiums were in Arlington, TX. The average cost was $1,761 for the test home. The least expensive premiums were in Mesa, AZ, where coverage cost an average of $555.
Why does location matter so much in setting premiums? Two reason:
· Risk. Insurers don't like risk. The more of it there is in a location, the more a homeowner there will pay for coverage. Location determines factors such as the risk of a natural disaster. The Dallas area, which includes Arlington, suffered the greatest amount of property damage during the past 10 years among the cities studied; it also had the most disasters declared by the Federal Emergency Management Agency.
· Local construction costs. Homes should be insured not for their purchase price but for how much it would cost to rebuild them should they be destroyed by a covered peril such as fire or wind. Replacement cost is determined in large part by multiplying the square footage of a home by local construction costs. Replacement costs for the test home used by HomeInsurance.com ranged from about $250,000 in Alamo Heights, TX, in the San Antonio area, to $388,000 in West Hollywood (in the Los Angeles) area.
Location isn't the only factor, of course, just as it isn't the sole factor in the sale of a house. A homeowner's claims history, the physical characteristics of the house and several other elements, including a policyholder's credit history, go into the process of setting premiums. That's why understanding those factors can be a huge advantage for a home buyer or seller.
You can see the full report here: https://homeinsurance.com/blog/2014/06/26/home-insurance-pricing-index-in-the-u-s-suburbs/
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