Have you ever wondered what determines your homeowner’s insurance premiums? Why the new house you just bought is $1,000 less (or more) for homeowner’s insurance than the home you just sold? All insurers have their own unique model, or calculation, to determine your premium and many try to find unique variables to make their company better at determining the “right” premium for your home. So while we are unable to list all the possible variables, let’s review the most common and perhaps the most significant ones.
1) Dwelling Limit – this is the amount of coverage needed to rebuild your home. Of course many factors also go into determining the right coverage limit for your home such as square footage, quality of construction, building materials, etc.
2) Your Financial Insurance Score – this is not your credit score, but is still based on your credit history. Insurers have found that the handling of one’s credit and bill payment history is predictive of future losses.
3) Your location – Is your home located in an area prone to tornados, blizzards, hurricanes or other natural disasters? Is there a high frequency of burglaries or vandalism? In addition to weather and crime statistics, another variable related to your location is the distance to your home and quality of your local fire department which is called your fire protection classification.
4) Year Built – A homeowner that has lived in a home long enough knows this unfortunate fact; the older a home, the more “things” happen. It could be a burst pipe, worn electrical wiring or a number of other issues that arise over time. While homeowner’s insurance may not cover “wear and tear,” many of the sudden damages caused by these issues are, such as water damage caused by the burst pipe. The surcharge of older homes can be minimized, however, with replacement of or updates to major household systems such as furnaces, roof, plumbing and electrical wiring.
5) Exterior Construction – The materials utilized to build your home are considered in both risk and ease of replacement. For example wood homes are more susceptible to fire and water damage than brick homes. Conversely, if you were looking to add an earthquake endorsement or policy to your insurance plan, then wood homes usually withstand this disaster better than brick homes. Insurers also look at the supply of materials used in your home’s construction. Imported or limited supply materials are going to carry a heavier expense.
6) Security Features – The measures you take to minimize or avoid damage to your home can reward you with additional discounts on your homeowner’s insurance. The most common ones include centrally monitored burglary and/or fire alarms, smoke detectors, fire extinguishers and deadbolt locks on your exterior doors.
7) Liability Exposures – Insurers consider any features to your home that may increase the likelihood of others to sustain injuries on your property. Common examples of such features would include pools, trampolines and pets.
8) Claim or Loss History – If you have filed a claim within the recent past, most likely any insurer will surcharge you for the next several years. The type of loss you had will also impact the amount of the surcharge, with a weather related loss being far less costly than other causes of loss. If you were unfortunate to have multiple losses within a small period of time, then you will also probably find the ability to attain a new policy more challenging for at least a few years. Additionally, claim history follows you from one home to the next, so if you ever wonder if you should turn in that “small” claim, you should call your independent agent to help you weigh the pros and cons.
9) Coverage and Deductibles – Not all homeowner’s insurance policies are the same. Many carriers offer multiple levels of coverages, from “bare bones” to “robust” to suit your needs, budget and level of risk tolerance. Additionally your deductible, or the amount that you cover of a loss before your insurance begins to pay, also has a significant impact on your premium. The more you “self insure,” the less your insurance premiums will be.
We hope this helps you gain a little insight into your homeowner’s insurance premiums. While not all are in your direct control, perhaps understanding some of the variables utilized can help you take steps to minimize your homeowner’s insurance premium through either prudent home improvements or reviewing your coverages and deductibles with your independent insurance agent.