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One decision can result in very high insurance premiums.


Key points

  • Buying homeowners insurance is important for asset protection.
  • Many factors affect the cost of homeowner insurance.
  • One particular decision can have a particularly large impact on the cost of insurance coverage.

When you buy a home, there are many different things you need to consider to make sure the property is affordable. Home insurance premiums are one of the things to think about. This is because home insurance premiums will need to be paid for as long as the property is mortgaged, and ideally for the entire time the property is owned.

Home insurance prices can vary greatly depending on many factors, including the size of the home and the material it is built from. But there is one particular solution that can make insurance premiums significantly more expensive. That’s what it is.

Property location can be critical for home insurance premiums

One of the most important decisions homeowners make when it comes to insurance premiums is the location of their home. In particular, if the house is located in a flood zone, this will lead to a significant increase in the cost of insurance premiums.

You see, insurers decide whether to provide coverage and set the cost of home insurance coverage based on the risk of having to pay a claim and the amount a claim is likely to cost them.

When a home is in a flood zone, the chance of water damage is very high. As well as Federal Emergency Management Agency reports that in 2019 the average flood insurance claim was $52,000, which is a fairly large claim. The risks associated with flood insurance are so great that standard insurance policies do not even cover flood damage. You will need to purchase a special policy either from one of several insurance companies that offer private flood insurance or through the National Flood Insurance Program operated by FEMA.

Paying for an entire single policy obviously adds a significant amount of home insurance costs, especially given the fact that there is a high risk that these policies will eventually pay the claim. Federal Emergency Management Agency reports that in 2019, the average annual flood insurance premium was $700, which is a huge added cost for homeowners in need of such insurance coverage.

Should I buy property in a flood zone?

Any homeowner who buys a home in a flood zone will require their mortgage lender to have flood insurance coverage. And even homeowners who buy a home without a mortgage will want to buy this coverage. Otherwise, their standard insurance won’t pay out anything in the event of a flood, and they won’t have the financial means and will have to pay losses out of their own pocket.

Now sometimes people decide that these costs are worth paying for. For example, if a person wants to live on the beach and can afford waterfront property, they may decide that the extra cost of flood insurance is a small price to pay for the great views their property offers.

But it is important to know in advance that flood insurance will be an additional cost and budget for it. Those considering buying a home in a flood zone should get an idea of ​​how much flood damage protection insurance will cost and make sure their property will be affordable even with these high additional insurance premiums.

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