When buying a home, there are many different things to consider in order 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 the entire term of the property’s mortgage – and ideally, for the entire term of ownership of the property.
Home insurance prices can vary widely depending on many factors, including the size of the home and the material it is built with. But there is one decision in particular that could make bounties much more expensive. Here is what it is.
A property’s location can make all the difference in home insurance premiums
The location of their home is one of the most important decisions homeowners make that affect insurance premiums. Specifically, if a house is located in a flood zone, it is going to result in much higher insurance premiums.
You see, insurers decide whether or not to provide coverage and set the cost of home insurance coverage based on the risk of having to pay a claim and how much a claim is likely to cost them.
When a house is located in a flood zone, the risk of water damage is very high. And FEMA reports that the average flood insurance claim was $52,000 in 2019, which is a pretty large claim. The risks of flood cover are so great that standard insurance policies don’t even cover flood damage. A special policy will need to be purchased from one of the few insurers offering private flood coverage or through the National Flood Insurance Program run by FEMA.
Paying for an entirely separate policy obviously adds significant costs to home insurance, especially since there is a high risk that these policies will end up paying out a claim. FEMA reports that the average annual premium for flood insurance was $700 in 2019, which is a huge extra cost for homeowners who need this type of coverage.
Should you buy a property in a flood zone?
Any homeowner who buys a home in a flood prone area will be required by their mortgage lender to carry flood insurance. And even homeowners buying a home without a mortgage will want to choose to buy this coverage. Otherwise, their standard insurance will pay nothing in the event of a flood and they will have no financial recourse and will have to pay for losses out of pocket.
Now, sometimes people will decide that these costs are worth paying. If a person wants to live on the beach, for example, and can afford waterfront property, they may decide that the extra costs of flood insurance are a small price to pay for the magnificent views that his property offers.
But it’s important to know up front that flood insurance is going to be an added expense and build that into the budget. Those considering buying a home in a flood prone area should have an idea of the cost of insurance to protect against flood damage and ensure that their property will be affordable even with those high additional insurance premiums. .
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