Here’s a little-known fact: even if you and your neighbor own the same type of home and have insurance through the same company, your rates will likely differ.

If you’re surprised by this, you’re not alone. It shocked me too — that is, until I sat down with Mark Komiskey, our senior actuary, to understand how insurers determine homeowners insurance rates. (And no, it’s not with a blindfold and dartboard.)

How homeowners insurance rates are determined

To set your rate, actuaries look at hundreds of different factors. Everything from the shape of your roof to the number of people living under it can affect how much you pay.

Because of the unique variables at play, it’s unlikely you’ll ever pay the same rate as your neighbor. In other words, your rate is as individual as you are.

The 3 main factors that influence your rate

Though insurers consider minute details when setting your rate, these 3 factors typically play the biggest role.

1. Your location

In real estate, location is everything. And the same holds true when it comes to determining your home insurance rate.

The reason is simple: your home’s location can indicate potential risk. Is it in the woods, surrounded by shrubs and grasses, making it vulnerable to fire? Is there a history of break-ins in your neighborhood or is your area safer than Fort Knox? How far away is the fire station? All of these location-based factors can paint a picture of how risky your home will be to insure.

Typically, the more risk you pose, the higher your rate will be.

2. The characteristics of your home

Obviously, the size and type of home you live in can affect your rate because these factors determine how much home insurance you need. (In general, you want to have enough coverage to rebuild your home from the ground up if the unthinkable happens.)

What may not be obvious, though, are how these specific features can impact your rate:

  • Your home’s age — The older your home is, the more it could cost to insure. Since older homes can cost more to replace, they require a higher coverage level than new homes of the same style. Plus, while old homes may have withstood the test of time, they may not have been retrofitted to withstand the test of a disaster.
  • Your home’s structure — The type of construction material used is another contributing factor. Masonry-brick homes, for instance, withstand wind better than wooden-frame ones (hey, even the Big Bad Wolf can’t blow it down). On the other hand, frame homes can fare better in an earthquake.So if you live in a wooden-frame home in Tornado Alley, you could be deemed riskier to insure. But move that same home to California where earthquakes are the norm and you could score brownie points.
  • Your garage — It’s true, size matters (at least when it comes to your garage). Bigger garages are more likely to be broken in than smaller ones, because they generally hold more stuff. So if you have a 3-car garage, your risk for theft is higher than someone with just a 1-car garage. And in insurance, more risk usually means higher premiums.

3. Your insurance history

Psychologists often believe that “the best predictor of future behavior is past behavior” — and so do most insurers.

To predict how likely you are to file a claim, insurance companies will typically look at your property insurance record (homeowners, renters, or condo). Are you the type to file a claim for small occurrences? Do you only do it in the worst-case scenario? Or do you fall somewhere in the middle?

Strange as it may sound, if you have zero claims but have had coverage for years, you could get a more favorable rate than someone who filed 3 claims in a 2-year period. The reason is simple: insurance is meant to protect you from uncontrollable catastrophic events like fire, theft, and severe windstorms. Frequent, small claims for preventable occurrences can indicate that you’re riskier to insure.

How to improve your homeowners insurance rate

There isn’t a one-size-fits-all approach to improving your rate. But, generally, anything you do to lower your level of risk to an insurer can be beneficial. This can mean replacing a worn roof with a hail-resistant one, updating an ancient electrical system, or adding deadbolt locks (if you don’t already have them).

It’s also smart to shop around every now and then to see if you can get a better rate. If you live in a state where Esurance offers homeowners coverage, get your free quote to see if you could save.

Related links

5 surprising things covered by homeowners insurance
10 things to look for when buying a house
What a foreclosure means for your homeowners insurance

Homeowners 101


about Anne

If variety is the spice of a copywriter’s life, then Anne’s career at Esurance was akin to sassafras. From 2010 to 2014, she added a touch of zest to topics ranging from cleaning with baking soda to becoming a first-time homeowner.