Insuring a Tiny Home

In an expensive residential real estate market, some borrowers are turning to tiny homes—that is, homes that measure under 600 square feet, on average, and run about 87% less than an average home—an average of $52,000, according to a porch.com survey. (Bear in mind that, per square foot, tiny homes are 62% more expensive).

Another survey published this week examines the cost of homeowner insurance, comparing tiny-house insurance to that of a 2,100 square foot residence.

"While the price varies across the U.S., insuring a tiny house is cheaper than insurance for a standard home in every state and the District of Columbia," Value Penguin reported. "The most expensive state to insure a tiny home in is Oklahoma, followed by others where costly natural disasters occur more frequently than in other parts of the country—Tennessee, Kansas, Texas, and Colorado. Still, it costs 95% more to insure a 2,100-square-foot home in these five states than it costs to insure a tiny home. Across the U.S., the cost to insure large homes is 106% more expensive than the cost to insure tiny houses."

Tiny houses are cheapest in North Dakota ($28,000), but Arkansas ($31,700) has the lowest price per square footage at $109 per square foot. Hawaii has the most expensive tiny real estate, average home costing over $149,000 or $490 per square foot, and other cities where tiny homes are most affordable include New Hampshire and New Jersey where they cost less than 50% of an average annual household income.

When it comes to insuring a tiny home, ValuePenguin analysts found that homeowners can offset the cost of insurance for tiny homes in disaster-prone areas by opting for a percentage-based deductible instead of one that's determined by a cash payment.

"By leveraging the lower value of their homes, homeowners can save an average of 9% a year on insurance compared to those whose policies use cash-based deductibles. This knowledge can prepare homeowners in the hottest markets for tiny homes, which can be in some of the most expensive states for tiny home insurance."

For example, in Massachusetts, tiny homes cost 91% less than regular homes (porch.com), the biggest price difference than any other state. Committing to a 2% deductible instead of a $500 deductible results in an annual discount of 9% across the country, with savings amounting to 17% in Massachusetts. And as policyholders increase their deductibles past 2%, their rates will decrease further in most cases, Value Penguin points out.

Value Penguin's study is available at value penguin.com. Find the tiny home price survey at porch.com.