5 Factors Affecting Home Insurance Rates
Your home’s value is an important factor in the cost of your homeowners insurance. But did you know it’s not the only one? Here are a few other pivotal factors that go into determining your home insurance rates.
- Age of home and type of construction: If your home has been recently built, you can expect your home insurance rates to be somewhat low. On the other hand, an older home will often command a higher insurance rate. Various systems within the home will be evaluated for quality, age, and efficiency as well. These include the HVAC (heating, ventilation, and air-conditioning) systems, the plumbing (copper or PVC-plastic plumbing is safer and more efficient than older lead plumbing), and the electrical wiring system (copper wiring is safer than older aluminum systems). The type of construction also matters: a home built of fire-proof materials, such as stone, brick or concrete will typically be insured at lower rates than a home that may be more prone to fire-damage, such as those built from wood. Tile or stone roofs may be less risky than wood-shingle roofing, as well. The more fire-prone the home, the more expensive it may be to insure.
- Risk factors of the property: Your home or property may be considered an insurance risk for many reasons. Swimming pools, trampolines, and guest houses are all property choices that may be deemed perilous. Keeping known aggressive dog breeds on the premises may also lead to higher insurance risk. Insurance companies will sometimes refuse altogether to insure homeowners with these known risk factors, or will insure the homeowner at a higher rate. Keep this in mind when buying home insurance if you have risks like these on your property. Also be aware that adding items such as these to your property could lead to higher rates or dropped coverage. You should always check with your insurance agent before adding them, or before buying a home where risks like a pool or guest house already exist, to know exactly how they may impact your home insurance coverage rates.
- Location of the property: Does your house lie in an area prone to damage from natural forces like high winds? Is your home in a high-crime area? These are just some of the factors related to a home’s location that could impact the rates you pay for home insurance. If your home lies in an area prone to natural disasters, such a hurricanes, tornadoes or wildfires, you could find yourself paying more for homeowners insurance. The same goes for your home’s proximity to a fire station, for safety and property-recovery reasons; many insurance companies will deem this proximal limitation to less than five miles. Also important are the crime rates in your area, especially as they apply to property crimes, such as vandalism, breaking-and-entering, and robbery. Finally, is your home in an area where building costs are known to be high? This is another factor that may impact your home insurance rates. Any of the above location-related factors could lead to higher home insurance rates for you.
- Your insurance claims history: If you’ve made insurance claims in the past, you could be setting yourself up for higher premiums in the future. Insurance claims must be weighed seriously: is the risk to your insurability worth it? Many home insurance claims might have been repaired by the homeowner instead, keeping insurance rates lower by reducing the number of insurance claims submitted. Certain types of claims may have a more negative impact on your rates than others. These include claims such as those made for dog bites, or water damage or other small-fix types of home-maintenance claims. The more claims you submit, the more money your insurance company is spending on you, and that can’t go on forever. At some point, your insurance risk will increase, and you will find yourself paying more for your home insurance. Many insurance companies may even drop your coverage altogether if you make too many claims within a specified period of time. Claims are serious business: know your insurance policy, and be sure you are only making claims when necessary and within parameters set by your insurer.
- Your credit score: Like so many other aspects of your financial life, home insurance rates are dependent on your credit. A low credit score may result in higher home insurance rates, and vice versa. Many insurance experts and financial analysts believe that a low credit score means you’re a bad risk financially. This is borne out with statistics: fewer home insurance claims are made by people with good credit than with bad. Insurance companies will look at both your FICO credit score and your insurance score (which takes into account your financial history, as well as your insurability risk factors; in other words, your potential stability as an insured person), and decide whether you are a good or bad insurance risk. It’s suggested that people with low credit scores continue with their insurance carrier until their scores improve; shopping around with a bad score may not help you find a better rate. Building up your score and proving that you are not a bad insurance risk is the best way to avoid penalties in the form of higher home insurance rates.