Home Insurance: Places With Lowest and Highest Rates -- and Why

Blair Hudson is an insurance underwriter in Dallas, Texas, who lives in a $400,000, 4,000-square-foot home. He pays $1,800 a year in homeowner's insurance. His twin brother lives outside of Chicago, Ill. in a $600,000 home half the size of Blair's, and pays $900 for virtually the same coverage. Blair knows why he pays more for homeowner's insurance in a cheaper home: He lives in one of the most expensive insurance states in the union.

When it comes to pricing homeowner's insurance, location dominates your premium. Is your state notorious for bad weather? Do you live in a crowded city or sparsely populated town? What's the crime rate? Live near the border? Actuaries even figure in how close your home is to the fire hydrant. But that's not all. Here's what else might affect your home insurance rates.

The age of the house and its construction also contribute, says Rebecca Hirsch, spokesperson for USAA. If the home is made of brick or stone, actuaries consider it stronger than wood, and insurance premiums will be lower. Fire alarms, systems and sprinklers also lower rates. USAA even partnered with ADP Security to offer customers a discount on burglar alarms, which would in turn lower their premiums. And the closer your home is to a fire station, says Hirsch, the cheaper your insurance.

Highest and Lowest Home Insurance States

Homeowner's insurance rates have been going up across the country. The average premium rose by 2.2 percent in 2007, and that was after a 5.2 percent increase the previous year. Florida and Texas seem to compete for the top spot as having the most expensive insurance in the country. In 2007, Florida had the honors with average premiums at $1,534. Texas wasn't far behind at $1,448. Here are the nine most expensive states (plus the District of Columbia) for homeowner's insurance (in the left column) and the states where insurance is cheapest (in the right column):

1 Florida (2) $1,534 1 Idaho $422
2 Texas (3) 1,448 2 Wisconsin 491
3 Louisiana 1,400 3 Oregon 496
4 D.C. 1,089 4 Utah 505
5 Oklahoma 1,054 5 Washington 506
6 Massachusetts 1,023 6 Ohio 540
7 Mississippi 1,019 7 Delaware 559
8 Rhode Island 950 8 Kentucky 578
9 New York 936 9 Maine 596
10 Connecticut 929 10 Iowa 610

What do the top five have in common? Erratic, violent weather, like the tornado that touched down near downtown Dallas recently while Houston was drowning under Tropical Storm Hermine.

If you want cheap homeowner's insurance, you need to settle inland, or go north, says Alston Williamson, an independent insurance broker in Dallas. But avoid Oklahoma and Kansas, where tornadoes come sweeping down the plains. Properties along the coast always run a risk of higher premiums because any beachfront property could be demolished or damaged by a bad storm. Washington, D.C.'s weather isn't bad, but it does have a high crime rate and security risks.

Most Expensive Five: It's Not All Weather

According to Go Insurance rates.com, these five continuously rank among the nation's most expensive places to insure a home: Texas, Washington, D.C., Louisiana, Oklahoma and Florida. (California dips on and off this list mostly because of earthquakes.) Texas has it all -- wind, rain, hail, tornadoes, hurricanes and earthquakes; because the state is so huge, every kind of peril is available.

In 2001 and 2002, a media frenzy about mold damage drove up premiums dramatically in Texas. Property insurance ate up 2.5 percent of the average Texans' household income, even with adjustments brought on by 2003 legislation that tightened regulations and eliminated many exemptions in the insurance business. Since then, Texans' rates have dropped by about 13 percent.

But last April, State Farm Insurance sued Texas over the state's public posting of its rate proposals to increase homeowner premiums an average of 13 percent for the company's 1.2 million Texas customers. The company said that the state gave away proprietary information.

State Farm is the largest property insurer in the country: The company wrote
$14,737,236 in direct premiums in 2009 and insures 21.6 percent, or nearly a quarter, of all U.S. properties, according to the Insurance Information Institute. Illinois-based State Farm has been in business since 1862.
Building costs are another factor that actuaries pop into the equation. Say you live in an area where there are more building restrictions, higher permit fees and a generally higher cost of living that drives up overhead, such as San Francisco. That adds up to more money to replace your home should it burn or be blown apart. The builders will charge more, and that cost is passed onto you in the form of higher premiums. Examples: Washington, D.C., where terrorism is also a worry. Louisiana is a Gulf state (two words: Katrina and Rita). Oklahoma can thank tornadoes, hail and wind for those high insurance rates; unfortunately, Oklahoma has one of the lowest property values in the nation.

The Landlocked Subsidize the Coast

It doesn't take long to understand why Florida is the home of the nation's most expensive property insurance. Florida has a large coastline and seems to bear the brunt of the hurricane season. It is difficult for Floridians to obtain home insurance because so many insurers have left the state. In fact, the state's largest property insurer is the Citizens Property Insurance Corporation (CPIC), a state insurance pool for homeowners who cannot obtain coverage from conventional insurers because they've had too many claims. About 1.35 million policies are covered in the CPIC. As you can imagine, the biggest concentration of CPIC customers live in Broward, Dade, Palm Beach and Monroe counties, places that get whacked by hurricanes more than others.

The total amount of real estate insured by the CPIC is estimated to be $8 trillion, according to research done by Wharton professor Erwann Michel-Kerjan, as reported in Forbes magazine. The CPIC has reserves of $20 billion, which would not be enough to cover a total wipeout. Funded by homeowners' premiums paid from across the state, folks living inland are paying higher premiums to subsidize insurance with the CPIC for the coastal dwellers. But if all the insurance companies flee the state, governments have no choice but to have a state-sponsored program. Similarly, the Louisiana Property Insurance Corp., a nonprofit last stop, insured post-Katrina Louisiana with more than 200,000 policies as larger insurers retreated.

"States often charge less because they aren't looking for as much of a profit margin and they're willing to take up more risk," said Bob Hunter, director of insurance for the Consumer Federation, a consumer advocacy group, in 2007. "Even with disasters in Florida and Louisiana, insurance companies have had three straight years of record profits."

Don't mind dishing out the dough for coverage? Maybe you think the coastal life is well worth a few extra hundred a year. But if you are dead set on the cheapest homeowner's insurance bill, move to Idaho ($422), Wisconsin ($491) or Utah ($505) for the lowest, most rock-bottom rates in the nation.

But as Williamson points out, your auto insurance may just make up the difference.

Want to know more about what it takes to own and insure a home? Here are AOL Real Estate guides that can help:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

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