What affects home insurance rates?

How are home insurance premiums determined?

Your home insurance premium is the amount you pay on a monthly, quarterly or annual basis to maintain your homeowner’s insurance policy. While calculating your premium, insurance companies assess your level of risk and the likelihood that you’ll need to file a claim. In general, the more risk your home presents to an insurance provider, the more you can expect to pay for your premium.

Key factors that impact your home insurance premium

Location

Insurance companies often use location to assess your risk of experiencing covered losses such as vandalism, theft, fire and windstorms. Homes in areas prone to harsh weather are often considered high risk, potentially raising your premium. Other factors like your home’s distance from fire hydrants, fire stations and police departments could also influence your rates.

Age and condition

Depending on the age and condition of your house, insurers may see a higher risk of damages. Older homes often require more repairs and have aging systems — like plumbing and HVAC — which could increase the likelihood of accidents.

Size

In the event of an accident, larger homes often require more expensive repairs. This is simply because bigger homes use more materials and take extra time to fix.

Rebuild costs

The cost of rebuilding your home, including materials and labor, plays a significant role in determining your premium. Insurance companies may find the need for a higher premium if your home requires expensive materials to rebuild.

Inspection

Many insurance companies ask to perform a home inspection before finalizing your policy. This inspection typically includes the size of your home, its exterior, the type of materials it’s built with and the state of its electrical, plumbing and HVAC systems. An inspector may find that your home’s modern features reduce your risk of accidents, which could lead to lower home insurance premiums. On the other hand, things like faulty wiring could point to higher risk, and therefore, higher home insurance rates.

Economic conditions

Current economic conditions often help explain why home insurance rates increase. As construction, labor and material costs go up, insurance companies may raise premiums to cover potential expenses.

The impacts of inflation are also important to consider as you determine your coverage needs. Making sure your coverage amount aligns with the cost of making repairs in your area can help ensure that your home and finances are better protected.

Home features

In the eyes of your insurer, certain features of your home can help lower your risk of filing a claim and decrease your premium. These features usually include smoke detectors, security systems, surveillance cameras and drainage pumps.

Claims history

A history of filing multiple home insurance claims could increase your premiums. That’s because insurers may find that you’re more likely to need help covering potential damages and accidents.

Coverage amount

While buying your policy, it’s important to choose a coverage amount that covers your needs and the value of your home. A larger policy often leads to a higher home insurance rate because, in the event of a claim, your provider may have to pay a larger amount to cover damages.

Risk of natural disasters

Natural disasters such as wildfires, tornadoes and hurricanes can cause severe damage to homes and personal belongings. Policyholders in areas with a high risk of experiencing natural disasters typically have higher home insurance premiums.

Many home insurance policies also don’t cover disasters like floods and earthquakes. As you review your coverage needs, it may be beneficial to add optional flood or earthquake insurance. Just remember, these extra policies could add to your premium costs.

Regulatory changes

Many states pass laws to regulate how home insurance is priced and mandate coverage for certain risks. Check your state’s policies on home insurance to see how they could impact your premium costs.

Tips to help you save money on home insurance premiums

There are many ways you could lower your home insurance premium. Finding the right strategies for your situation can help you reduce home insurance costs and achieve meaningful savings over time.

Bundle your home insurance with other policies

Many insurance providers offer discounts when you bundle multiple policies such as your home and auto coverage. This may lead to lower home insurance premiums or help decrease the total cost you pay for multiple policies.

Choose a higher deductible

Typically, a higher deductible is correlated with a lower home insurance premium. Choosing a higher deductible could help reduce your premium costs.

Keep in mind, your deductible is the amount you pay out of pocket in the event of a claim. If you choose a higher deductible, it’s important to ensure that you’re financially prepared to cover the cost.

Check for discounts

Many insurance companies offer discounts on home insurance premiums for a wide range of reasons. Discounts may be applied if your home has attractive features like a security system or new roof. Insurers might also offer discounts if you have a good credit score or remain claim-free for a number of years. Make sure to ask about any discounts you may be eligible for as you search for a policy.

Compare quotes

Comparing quotes from different providers can help you find the coverage option and pricing that best fits your needs. It’s also helpful to consider other benefits such as customer service and the ease of filing claims as you make your decision.

Pay for minor repairs out of pocket

Remember, a long record of home insurance claims may increase your premium. Especially when the cost of fixing a minor issue is less than or equal to your deductible, paying for the repair out of pocket may be the most financially wise option.

Make improvements to your home

Making improvements to your home could show your insurance provider that you’re taking steps to decrease the risk of damages. Some companies reward homeowners with lower home insurance rates for adding features such as storm shutters, drainage systems or secured roofs — especially in areas prone to natural disasters.

Learning how your insurance premium is determined could help you make financially responsible decisions related to your home and the coverage you choose. Begin your search for home insurance today by getting a quote through the TruStage™ Home Insurance Program.