Homeowners insurance, also referred to as hazard insurance, provides a way for a homeowner to cover her losses if a disaster should cause damage to her home. According to the U.S. Department of Housing and Urban Development, a lender often requires that a homeowners insurance policy be in place before finalizing a mortgage settlement. Many factors influence the total annual cost of this insurance, including the extent of the coverage and the location of the property.
According to the Federal Reserve Bureau, the average cost of an annual premium for homeowners insurance is between $300 and $1,000. For most homeowners, the annual costs for a homeowners insurance policy can be estimated by dividing the value of the home by 1,000, then multiplying the result by $3.50.
One factor in the cost of homeowners insurance is what circumstances are covered under a particular policy. Some examples of typical disasters and incidents that are covered under a basic homeowners insurance policy are fire, vandalism and wind, says the Federal Reserve Board.
The location of a home directly affects which types of disasters are covered on a homeowners insurance policy, CNN Money explains. There are additional circumstances that may not be covered due to the home being located in a high-risk area for that type of disaster. California is a prime example of this issue because of a large portion of the state's residential areas falling on or near a major fault line. In this case, homeowners may need to purchase a separate policy for earthquake coverage.
While annual premiums are typically paid in monthly installments, some lenders might require a homeowner to pay the first year's annual premium in full before completing a mortgage settlement, says the U.S. Department of Housing and Urban Development.
According to the Federal Citizen Information Center, there are several ways for homeowners to reduce the costs of their annual premium on a homeowners insurance policy. For example, installing a new roof or storm shutters--both of which can protect against natural disasters--may reduce the annual premium for some homeowners. The installation of security alarm systems, dead-bolt locks and smoke detectors can also result in discounts of about 5 percent.