If you recently obtained a new homeowner’s insurance policy or are considering adjusting an existing one, you’re probably concerned about your rates. Understanding what influences your rates is key to making sound decisions.
The factors that affect homeowners insurance are diverse, ranging from the location of your home to the choices you make regarding coverage. By staying informed, you can better manage your expenses and ensure you're covered without overpaying.
In this article, we explore five critical factors affecting homeowners insurance premiums and highlight ways to lower costs.
1. Property Location
Geographic Location
Your home’s location has a significant impact on home insurance costs. Unfortunately, if you live in an area prone to natural disasters such as hurricanes or wildfires, you can expect higher premiums. Insurers charge more to cover homes in high-risk zones because the likelihood of a claim being filed is much greater with most companies requiring separate coverage for floods and earthquakes.
Proximity to Fire Department
The farther your home is from a fire department, the higher your insurance premiums will likely be. Homes located far from emergency services face higher risks of severe damage in case of fire, which increases the cost to insure them.
Neighborhood Crime Rates
Living in an area with high crime rates can also increase your homeowners insurance premiums. Homes in neighborhoods with frequent burglaries or vandalism are considered higher risk, leading to greater insurance costs.
2. Home Characteristics
Age of the Home
The age of your home is another key factor that affects homeowners insurance premiums. Older homes often cost more to insure because the electrical, plumbing, and heating systems are more prone to issues and may need updating. Also, older homes may require specialized materials or workmanship to repair, further driving up costs.
Home Construction Materials
The materials used to build your home significantly affect your insurance rates. Homes built with fire-resistant materials may have lower premiums than more flammable materials such as wood roofs.
Home Size and Features
The square footage of your home and its features also affect home insurance rates. Larger homes generally cost more to insure because they would be more expensive to repair or replace in case of a disaster. High-risk features like swimming pools, trampolines, or even certain types of roofing can also increase your premiums due to the added liability and potential for damage.
Home Security Systems
Security systems, smoke detectors, and fire alarms reduce the risks of theft and fire, making your home safer. Many insurers offer discounts to homeowners who invest in these protective measures, lowering premiums.
3. Policyholder Factors That Affect Home Insurance Rates
Claims History
Your past insurance claims can also affect homeowners insurance premiums. If you’ve filed multiple claims in the past, insurers may view you as a higher risk, leading to increased premiums. It’s important to consider this before making minor claims that might not be worth the potential rise in your insurance costs.
Coverage Choices
The level of coverage you choose directly affects your insurance rates. The more protection you have, the higher your premium will be. Conversely, opting for basic coverage can save you money, but will leave you with more out-of-pocket expenses in case of a claim.
Credit Score
Your credit score is more than just a number — it can directly impact home insurance costs. It’s worth noting that while California does not use credit scores or credit-based insurance scores to determine rates, insurers in some states do use it to determine eligibility and premiums. A higher credit score typically indicates a lower likelihood of filing a claim, which results in lower premiums. Conversely, a lower credit score can result in higher rates.
4. Homeowners Insurance Price Factors and Coverage Options
Coverages and Limits
Optional coverages such as scheduled personal property for valuables will increase premiums as well as higher limits of coverage.
Deductible Amount
Your deductible is the amount you pay out of pocket before your insurance coverage begins. Choosing a higher deductible can reduce your monthly premiums, as you agree to pay more upfront in the event of a claim. Make sure to choose a deductible that you can comfortably afford if you ever need to file a claim.
5. External Influences on Insurance Premiums
Local Building Costs
The construction materials and labor costs in your area can affect home insurance rates. If building costs are high, it will be more expensive for your insurance company to repair or rebuild your home after a loss, leading to higher premiums. Areas with rapidly increasing construction costs may see rising insurance rates as a result.
Weather Patterns
Weather Patterns – As more natural disasters occur due to changing climate conditions, insurance premiums will increase to cover the cost of catastrophic events. For example, an increase in the number of wildfires can lead to higher premiums in states such as California which are prone to these fires.
6. Ways to Lower Your Home Insurance Rates
Bundling Policies
One of the easiest ways to reduce your costs is to bundle your home and auto insurance policies with the same provider. Many insurers, including Wawanesa, offer discounts for customers who combine their policies, leading to significant savings.
Improving Home Security
As mentioned earlier, improving your home’s security can lower your insurance premiums. Installing fire alarms, burglar alarms, and other protective measures makes your home safer and makes you eligible for discounts.
Regular Policy Reviews
To ensure you’re not overpaying, it’s a good idea to review and update your coverage regularly. As your home ages or you make improvements, your insurance needs may change. A quick check-in with a Wawanesa insurance agent can help you adjust your policy and potentially lower your rates.
Contact Us to Discuss Your Policy
Understanding all the factors that affect homeowners insurance premiums can help you make smart decisions and potentially save money. From the location of your home to your coverage choices, each factor plays a role in determining your insurance costs.
Wawanesa is here to help you navigate these factors and find suitable coverage at affordable rates. If you have questions about your current policy or to find out how to reduce costs, one of our agents would be happy to assist you.
Frequently Asked Questions
What would cause homeowners insurance premiums to go up?
Several factors can cause your homeowners insurance premium to increase. These include filing claims, adding a high-risk feature like a pool, or living in an area with rising local building costs or increased natural disaster risks. Insurance industry updates can also lead to higher premiums.
How are homeowners insurance premiums calculated?
Your homeowners insurance premium is calculated based on various factors, including but not limited to the location of your home, its age and construction materials, claims history, coverage amounts, and deductible. Insurers also consider local building costs and inflation when determining your premiums.
How often should I renew my homeowners insurance policy?
Homeowners insurance policies typically renew every 12 months. Therefore, reviewing your coverage at least once a year or after significant changes to your home or personal circumstances is recommended. Regular reviews ensure that your policy still meets your needs and that you’re not overpaying for coverage.
