In the Land of 10,000 Lakes, natural disasters and severe storms are the norm in the winter months. From 2005 to 2013, 54 percent of claims were related to natural disaster events.
It’s cold in Minnesota, and flooding, hail, and wind are also main contenders for disaster events.
Average annual premium in Minnesota
Insurance premiums reflect risk, insured value, and also current loss trends — causing rates to spike following widespread claims. On an individual level, Minnesota has the misfortune of being the state with the highest average increase in premiums for customers following a claim; increases can easily top 20 percent. Overall, home insurance rates in the state are slightly above average, with Minnesotans paying an average of $1,219 compared to a national average of $1,132, according to data from the Insurance Information Institute.
Finding the best premium for your home
Minnesotans face unique risks to their homes and finding the best premium is really an individual challenge to find the best coverage for your home — at a price that fits your budget. First, it’s important to understand the basics of a homeowners insurance policy, including what’s covered, how well it’s covered, and some risks that aren’t covered with a standard policy.
Rates have increased in Minnesota as a response to increases in claim frequency and claim severity in the state. Claims have trended upward both in average claim cost and in how often claims happen overall. The Insurance Research Council published a study that indicates an annualized increase in claim severity (cost) of nearly eight percent per year over a recent 17-year period. Most of those claims were for damage covered by dwelling coverage, also known as Coverage A, the coverage that pays to rebuild your house.
When you buy home insurance, your agent will ask a seemingly endless amount of questions about your home. The information you provide about your home is used to calculate a detailed rebuild cost using specialized software. In most cases, this calculated value becomes the insured value of your home. While consumers may have some latitude to change the insured value, it’s always recommended that you insure your home for at least 80 percent of the calculated rebuild cost — and 100 percent insurance-to-value is even better. Homes covered for less than 80 percent of the rebuild cost can be subject to a budget-busting insurance clause called coinsurance, which can affect any claim, big or small, and dramatically reduce your claim payout.
It’s also important to review your coverage with your agent periodically, including the dwelling coverage amount. You’ll want to be sure that your coverage has kept pace with inflation in regard to the cost of labor, materials, and transport. A policy review also provides an opportunity to catch any previous omissions or additions and improvements you’ve made to your home.
There are several types of home insurance policies, but the most common for single-family homes are HO-2 and HO-3. An HO-2 policy is a named-peril policy, meaning the policy only covers the perils specifically named in the policy.
The perils covered by an HO-2 home insurance policy are as follows:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Vandalism or malicious mischief
- Volcanic eruption
- Falling objects
- Weight of ice, snow, or sleet
- Accidental discharge or overflow of water or stream
- Sudden and accidental tearing apart, cracking, burning, or bulging (household systems)
- Sudden and accidental damage from artificially generated electric current
An HO-3 policy is a hybrid policy. Dwelling coverage is provided for all risks except those that are specifically excluded. This means it covers everything covered by an HO-2 policy — and more. Coverage for personal property reverts back to the covered perils for an HO-2 policy.
Floods, land movement, and water backup and sump pump overflow are specifically excluded from both HO-2 and HO-3 policies, meaning coverage for these risks is not included in a standard policy. Coverage for floods will require a separate policy. Coverage for the other two exclusions, land movement and water backup and sump pump overflow, can sometimes be added to a home insurance policy as an endorsement.
An HO-3 policy provides more comprehensive coverage for your home. You might be lucky enough to find an HO-5 policy, which has the same “all-risk” coverage as an HO-3, but only limits covered perils for personal property by specifically named exclusions, making personal property coverage “all risk” as well.
These are the exclusions typically found on HO-3 policy:
- Water damage (floods are not covered, but other water damage may be covered)
- Earth movement
- Power failure
- Ordinance or law
- Intentional loss
- Nuclear hazard
The exclusion definitions on your policy will be more explicit.
Most parts of your home will be covered with replacement cost coverage, with the notable exception of your roof. Replacement cost coverage pays the full cost of repair or replacement, subject to coverage limits and deductibles. Roofs, however, are often treated as “wear items” and are usually paid on a schedule that reflects depreciation due to age. Some policies are kinder with roof coverage than others, so be sure to ask your agent for some examples of how much a claim would pay for your roof. Homeowners with older roofs may not get much (or anything) in a roof claim if they also have a high deductible.
Personal property coverage
Minimalist living is all the rage now, but most households still have lots and lots of things — and they all cost money to replace. Your personal property simply refers to your personal belongs, including televisions, computers, furniture, valuables, or almost anything else that you own but isn’t attached to your house; vehicles aren’t included in personal property coverage.
Often when coverage is bound on a home insurance policy, the coverage limit for personal property is a best guess because a detailed accounting isn’t feasible. The default coverage might be 50 percent of the total dwelling coverage, with the option to adjust the coverage amount as needed. Using this example, a home insured for $200,000 would have a $100,000 limit for personal property coverage. However, there are much smaller limits for certain types of items.
Jewelry, firearms, furs, and other categories of valuables will be limited to a smaller coverage limit for that category, often between $1,000 and $5,000. If you have valuables that are worth more than the coverage limit, the solution is to specifically insure those items, which are then called “scheduled items”, or to purchase a separate policy for those valuables. Insurers will need a recent receipt or an appraisal to verify the value of these belongings.
Look for an option to cover your personal property for replacement cost. The alternative, common on many policies, is called actual cash value, and it pays a depreciated amount for your personal belongings. A sofa that cost $1,000 when new and that will cost $1,000 to replace might only be paid at a fraction of that price in a covered claim with actual cash value coverage. Replacement cost coverage covers your personal belongings for the true cost of replacement.
Personal liability coverage
Ah, lawsuits. They can happen to anyone, even the most careful of people. A standard homeowners insurance policy comes with a minimum of $100,000 in personal liability coverage, which provides coverage for unintentional injury to others or for accidental damage to the property of others. You can usually triple the amount of coverage to $300,000 for about $20 per year. Both of those figures may sound like a lot of coverage, but consider this: if someone else is injured you might be sued not just for their medical expenses, but also lost wages and pain and suffering. Claims can range from small amounts into the hundreds of thousands of dollars.
Your personal liability coverage doesn’t extend to your vehicles — you need separate policies for those — but it often follows you around elsewhere. If your stray golf ball bonks another golfer on the head or goes through the plate glass window at the players lounge, your personal liability coverage can help pay for the damages.
If you own a pool or simply want more coverage, most insurers offer liability limit options up to $500,000 or higher. If considering a higher amount, ask your agent about an umbrella policy, which is a cost-effective way to increase your liability coverage for your home and your vehicles with one policy.
The deductible is the part of an insurance claim that the customer pays. At a minimum, expect a deductible of $500 to $1,000, but some insurers may require higher amounts for customers with previous claims or for certain types of coverage. Your policy will have a deductible for wind/hail damage and a separate deductible for other covered perils.
Choosing a higher deductible is an effective way to lower your premium. Just be sure to choose an amount that you can cover if you do have a claim. When considering deductible amounts, try to think of an unfavorable scenario, such as roof damage. Roofs are usually covered for a depreciated value in claims, with older roofs receiving a lower percentage of coverage. An older roof damaged by wind or hail combined with a high deductible for wind/hail can leave you with a leaking roof and little or no claim payout to pay for the repair.
Insurers use discounts both to attract customers and to keep the customers they have. Customers who have multiple policies with the same insurer are less likely to switch insurers as often, so a multi-policy discount is the most common discount, and one of the top discounts in regard to savings. Claims-free discounts are often the largest discounts on your premium but because your claims history is used to determine your premium, this discount isn’t always obvious.
Common home insurance discounts
- Multi-policy discounts (bundling home and auto)
- Discounts for seniors
- New home buyer discounts
- Claims-free discounts
- Loyalty discounts
- Auto-pay or pay-in-full discounts
- Home safety features
- New customer discounts
Inclement weather in Minnesota
Residents of some other states might get rattled by a bit of snow — but for Minnesotans, that’s the winter norm. Averages of up to 70 inches of snow blanket the state annually, piling high on roofs, clogging gutters and drainage, and creating a risk to homes. Cold weather brings a risk of freezing pipes as well.
Two-thirds of Minnesota’s annual precipitation happens between May and September, with warm-but-rainy summer months bringing half of the annual precipitation. 2016 broke rainfall records as parts of the state received over ten inches of rain within less than two days, causing flooding and mudslides as nature rearranged the terrain.
Tornadoes are risk for Minnesotans as well, tending to accompany storms in groups of twisters that can cause widespread damage.
Weather and nature-related risks in Minnesota warrant a thorough understanding of your home insurance coverage. Fountain, Minnesota has proclaimed itself to be the “Sinkhole Capital of the U.S.” with over 10,000 sinkholes in the surrounding area. Sinkholes are common in the state and they aren’t covered by a standard home insurance policy, but you may have the option to add coverage for land movement.
Home insurance covers a lot of risks, but floods are not among them. If one of Minnesota’s 10,000+ lakes appears in your living room, your home insurance policy won’t help — but a flood insurance policy can provide some coverage.
A separate flood insurance policy can be purchased through most insurance agents and premiums range from a few hundred dollars per year up into the thousands. Finished areas and personal belongings kept in basements won’t be covered by a flood policy, but furnaces, hot water heaters, and circuit breakers are part of the building coverage on a flood policy.
Deductibles for flood insurance tend to be higher than many home insurance deductibles and premiums are determined by your flood zone and the insured value of your home and personal property.
Mortgage lenders often require flood insurance for mortgaged homes that are in high risk areas.
Most affordable cities
With higher-than-average home insurance premiums and rates that rise more dramatically after a claim than in other states, Minnesotans might be wondering why insurers are picking on them. While higher or lower insurance rates for a given location might seem unfair, it’s really all about risk — because insurance is the transfer of risk. You pay a premium and, in exchange, the insurer will pay for claims that can often be much higher than the total of the premiums you’ve paid.
A dizzying combination of factors go into determining a premium, including individual risks, but also risks that affect an area, such as crime rates, proximity to water, distance from a fire station, and other risks that can affect claim frequency and severity (amount).
Some of the most affordable cities in Minnesota for home insurance include:
- International Falls
- Thief River Falls
- Moose Lake
Most expensive cities
Among some of the more expensive cities in Minnesota for home insurance are:
- New Prague
- Prior Lake
- Forest Lake
In addition to risks, average home insurance rates for a given area also reflect the average insured value of homes. Areas with larger homes have higher average insured values.
Best picks for Minnesota
Minnesotans understand the value of a firm handshake and many appreciate the ability to do business face-to-face. With about 18,000 agents, State Farm maintains its commitment to service its customers in the communities they live in. As a full-service insurer, policies are available through State Farm for any type of home — from mobile homes, to single family homes, to landlord policies.
If you are shopping for auto insurance as well, be sure to get a quote from State Farm. The company’s multi-policy discount, which reduces the cost for both policies, can be larger than the multi-line discount offered by some competitors.
The Farmers Insurance Group of Companies includes its well-known namesake, Farmers Insurance itself, but also includes a number of other lesser-known insurers. This structure allows Farmers to find a policy within its network to meet nearly any insurance need. A network of nearly 50,000 exclusive and independent agents provide easy access for customers with service needs, coverage questions, or who want to bind coverage.
Replacement cost coverage is available (important in larger claims), and valuables can be added to your policy as scheduled items without a need for a separate policy. Of course, multi-policy discounts are available and Farmers even offers a discount for non-smokers.
With policies for home, auto, life, business, and even farms and ranches, American Family Insurance focuses its core business on 19 states that are a perfect fit for its mix of local market knowledge and products designed to meet the unique needs of consumers in those states.
Home insurance should cover the big risks, and American Family’s policy structure allows customers to choose the coverage they want without buying coverage they don’t need. Multi-policy discounts are available as is a special discount for homes with Smart Home features.
When shopping for insurance, it’s always recommended to visit at least one agent in person — and Allstate, with its massive network of exclusive agents, makes it easy to do discuss your insurance needs face-to-face. Both independent agents and exclusive agents have their benefits, and one of the main benefits of exclusive agents is their comprehensive knowledge of the products they sell because they only sell insurance for one company.
Questions are welcomed with Allstate and a conversation with your local agent can help you understand your policy and coverage in a way that phone service and company websites will never be able to provide quite as well. Discounts are available for bundling policies and a powerful combination of discounts are available for customers who are new to Allstate.
Auto-Owners Insurance Group
Don’t let the name mislead you. Auto-Owners Insurance Group offers a lot more than auto insurance, with policies for homes, landlord policies (rental dwelling), farms, and more. Sold through independent agents, Auto-Owners holds its own against some of the most attractive policies in the market.
With 42,000 independent agents selling its insurance products, a local agent is almost always nearby and ready to help with questions or to bind coverage. Guaranteed replacement cost is available and Auto-Owners even offers an option to cover underground service lines to your home, a large gap in coverage with many other insurers. Auto-Owners’ long list of available discounts, including multi-policy discounts and a mortgage-free discount (handy for seniors), helps you find more ways to save on insurance premiums.
Price is an important consideration in many Minnesota households — but with the state’s unique risks to homes, policy features become an equally important part of the insurance buying decision.
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At some point in your insurance-buying journey, try to talk to an agent face-to-face for a quote. The exchange, as you describe your home insurance needs, will uncover other risk considerations, answer those lingering questions we all have, and provide you with a better overall understanding of your insurance coverage.
Most of us pay thousands of dollars each year for our combined insurance needs; insurance premiums feel like money better-invested instead of simply spent when we are given the opportunity to understand the coverage we pay for — and to choose the best options to protect our homes.