In our current economic market of hyperinflation, we are going to see more insurance companies increasing premiums to keep up with the increased costs of claims.
This will lead to more individuals shopping their policies to see if they still have the best rates possible.
But what factors affect your home insurance rates? How can you get the best coverage for your needs? And why is your neighbor paying significantly more or less for a similar policy?
In this article, we will discuss some of the key factors that play a role in setting your premiums.
We’ll also provide tips on how to get the best coverage for your needs and budget, trying to give you the coverage you need to protect your asset and family while avoiding coverage you cannot use.
One of the biggest factors affecting your home insurance rate is the replacement cost of your home. Underwriters refer to this as the costs to repair or rebuild your home in case of destruction, not what your home would sell for if you listed it for sale.
Each insurance company provides its own reconstruction model used to calculate reconstruction costs. Since there are so many variables that go into each individual home, reconstruction cost is never an exact science.
It is usually a good practice to aim for the lower side of the cost to reconstruct a home and supplement reconstruction costs with less expensive extended reconstruction costs or guarantee reconstruction costs.
Your credit history is also taken into account when setting premiums. Generally, the better your credit score, the lower your rates will be.
This is because insurance companies see people with good credit as lower risk. If you’re not sure, you may want to check your credit score for free on a site like ClearScore.
If it turns out that you have a poor credit score, you may want to find ways of improving it before you apply for insurance.
Your claims history also impacts your premiums.
If you have filed claims in the past, you can expect to pay more for home insurance. This is because insurance companies see those who have filed claims as being high-risk policyholders. Not all claims filed are the same.
This is where it is important to use an experienced broker that represents multiple carriers and understands the underwriting requirements of each carrier. Some carriers rate past claims for 3 years, some for 5.
Even if a past claim does not increase policy premium, many carriers will use that claim to determine eligibility.
Some carriers will count claims due to acts of nature differently than a claim let’s say for a burst water pipe that may be indicative of future problems in the home.
Some carriers will count zero-dollar claims.
This is where a homeowner calls into the claim center to ask a question about a potential claim but does not file a claim or when a claim is filed for an amount less than the deductible amount, the same as any other claim that is paid out.
Other carriers will not recognize a claim below $500. Some carriers will look at claims from past homes, second homes, and rental homes owned by the same individual the same as if the loss had occurred on the home being insured.
Also, many carriers factor in auto claims when determining premiums on a home policy.
Another factor that can affect rates is your marital status. Married couples generally enjoy lower rates than single people. This is likely due to the fact that married couples are seen as being more financially stable.
Most companies are very liberal in what they define as married, extending this discount to long-term relationships and same-sex partners.
Age of Home
The age of your home can also affect the cost of premiums. Older homes tend to have higher rates because they may need more repairs than newer homes, and so there’s more potential for claims.
For example, an older roof could mean you’ll pay more for insurance than if you had a new one installed recently. This is why it’s important to keep up on maintenance tasks around the house!
Most companies offer a significant discount for roofs that have been replaced. If your house does have an older roof, it is important to select a carrier that will offer replacement costs on that roof and not the depreciated value.
Roof claims and water losses in the home are the two most common claims. It is important to be properly protected for these claims.
Another thing that impacts your home insurance costs is the deductible amount you choose. The higher the deductible, the lower the premium.
The optimal deductible amount for you is a discussion you should have with your broker depending on how you plan to use your policy.
Some homeowners are happy to only use their insurance for catastrophic losses. Other homeowners need to use their policies to cover smaller losses.
Location of Home
Finally, the location of your home can also affect premiums.
If you live in a high-risk area like a flood zone or an area prone to wildfires, you can expect to pay more for coverage. This is great to know when you’re looking for potential properties to purchase.