Why Homeowners’ Insurance Rates Vary Greatly
Posted in: Personal Insurance
Have you ever wondered how your homeowners’ insurance rate is determined? Or why is it possible that your rate can vary so much among carriers when shopping for your policy? There are actually many factors that affect your rate, which I outline below to help you better understand what you can and cannot control to lower your premium.
Factors you can control
Your homeowners’ insurance rate is affected by:
- The condition, age and location of your house.
If your home is an older construction, regular updates indicate to your insurance company that you are a responsible homeowner, which lowers your risk for a claim and therefore, qualifies you for a discounted rate. Some practical maintenance you can do includes replacing your roof if it’s older than at least 15 years, and updating wiring, plumbing and HVAC systems.
If you are moving, you may consider:
- Buying a newer building, which typically qualifies for a lower homeowners’ insurance rate because it is in overall better condition. Also, if feasible, you may choose a home constructed with fire-resistant materials like brick and concrete, which is more affordable to insure than a home built with soft, flammable materials such as wood.
- Near a fire department and/or fire hydrant;
- In an area where building costs are lower to manage the total cost of your claim in case you have to rebuild or repair your home; and
- Natural disaster-prone areas, such as flood or tornado zones;
- Close proximity to high crime areas.
- Your property risks, such as having a swimming pool, trampoline, guest house and aggressive dog breed. Each of these will increase your homeowners’ insurance rate, so make sure the benefits outweigh your costs.
- How you handle claims. Try not to report small claims to help keep rates lower because filing frequently can increase your homeowners’ insurance rates.
Insurance companies consider these factors when calculating your insurance score, which predicts the likelihood of you filing a claim – the higher the score, the higher the risk, and therefore your premium.
- The insurance provider’s risk appetite. In addition to considering changing your behavior and following some simple steps discussed above to receive a more favorable rate, you might also wish to seek assistance from an experienced and independent broker. Since most insurance companies tend to specialize in insuring certain homes, it is important to have an impartial partner who will find a carrier with risk appetite that matches your situation and negotiate on your behalf with a number of competing companies for the best rate.