Factors that Influence Home Insurance Quotes
Homeowners insurance premiums rank right up there with utility bills and taxes. It seems like there’s just no way around paying them. While homeowners aren’t forced to have insurance by law, lenders require a policy to protect their investment. That makes homeowners insurance one of the most prevalent types of policies issued. Like other forms of insurance, such as health and auto, carriers use hard data to compile rates that are based on risk and coverage limits. It’s an industry that doesn’t offer significant discounts, but understanding how they arrive at premium quotes can help consumers make informed decisions about how to minimize the expenses.
Understanding Claim Frequency
When a homeowner submits a claim, it's a loss to the insurance company. So the companies use extensive data analysis and an assessment of your property to arrive at a premium amount. The first cost driver is based on the root causes of claim frequency.
While statistics vary slightly from year to year, it’s safe to say that property damage makes up more than 95 percent of all claims annually. Severe weather impact makes up more than 40 percent and water damage and freezing exceeds 40 percent as well. Things like theft, bodily injury and other issues comprise only a small fraction of total claims. However, the average property damage claim runs about $10,000 while liability exceeds $16,000. When determining a policy cost, an insurer will look at how likely your property is to incur these types of loss and that drives the chances of you submitting a claim.
Factors That Influence Homeowners Insurance Quotes
When you apply for a homeowners insurance policy, the carrier’s primary concern is always the risk. Greater the risk of you incurring a loss and submitting a claim, higher the cost of your policy. That being said, there are some specific factors carriers look at that may influence your home insurance quotes. Some of them are listed below
The location you live in plays a major role in determining the cost of your home insurance. If your property is positioned on a fault line or in an area that is prone to flooding, tornadoes, hurricanes or other natural disasters, your home insurance policy will cost higher than the homes located in comparably safe areas. The same is true of the areas riddled with crime. Moving to an area that is not prone to natural disasters or crime not only guarantees your safety but also helps reduce your home insurance premiums.
Proximity to Fire Hydrants and Firehouses
A home that is positioned far away from a firehouse and/or fire hydrants will likely have a higher home insurance cost than one located near such facilities. Opt for a home that is positioned close to firefighting aids and you will likely enjoy cheaper home insurance premium apart from ensuring the safety of your home.
A home made of brick or cement is not as susceptible to damage from fire and wind as a home made of wood. A home with a wood structure is especially vulnerable to termites. As a result, homes with brick or masonry construction tend to be cheaper to insure than wood homes.
If you file claims at a high frequency, your home insurance rate will go up. In fact, a single claim will likely cause the home insurance rate to rise. It is prudent to avoid filing claims for small problems. Those who are claims-free for an extended period of time will pay 10- 20 percent less for home insurance.
New homes or those that have been extensively renovated are upwards of 25 percent cheaper to insure.
Swimming pools add value to your property yet they carry inherent risk. If anyone is injured when using your pool, you are responsible for the resulting medical bills and other damages. Even if you do not provide permission for an individual to use your pool, you are still liable if anything goes wrong. The cost of your home insurance will go up if you have a swimming pool. It’s usually advised to secure your pool with a fence and/or a self-locking gate to ensure safety.
If you have a trampoline on your property, your home insurance rate might be higher than it would be without one. Trampolines have the potential to cause all sorts of different injuries. Sell the trampoline to lower your home insurance premium. Put a net around the trampoline to reduce the odds of an injury.
A wood-burning stove will hike your home insurance premium. This increase can be mitigated by installing smoke detectors on each floor of your home. Make sure a fire extinguisher is within reach and that each occupant of the home knows how to operate it.
Home Security and Safety
Add a home security system to your domicile and it will likely reduce your premium as such a safeguard reduces the odds of a costly break-in and consequential claim. It will also help to replace outdated locks with new ones that include sturdy deadbolts. The installation and activation of a monitored home security system will reduce your home insurance premium. Or, opt for a property in a gated community and your home insurance rate will likely drop between five and 20 percent.
When a dog attacks those who walk on or near the property, resulting medical bills and lawsuits often necessitate hefty settlement offers on behalf of the home insurer. A typical home insurance policy will cover damage resulting from dog attacks on the property. However, this extended coverage comes at a cost. Dogs that are considered to be dangerous such as Pit bulls, Boxers, Rottweilers and German shepherds are more likely to result in a higher home insurance premium. Sometimes insurance companies may even refuse to cover.
Proximity to Water
It is expensive to insure a home by water as such a property has a higher risk for costly flooding that damages furniture, electronics and other valuable items in the home. Buy a home far away from water and in a space that is not prone to flooding to enjoy a more affordable home insurance premium.
If you are eyeing a home that relies on the burning of wood or oil for heat, consider alternative properties that use electricity/gas for heat. Oil and wood-burning furnaces are more likely to result in a costly fire.They also spur a hike in home insurance prices.
Homes that have pipes installed a very long time ago will likely have higher home insurance premiums. Older homes have concrete or cast iron piping that poses problems like disintegration. Old pipes should be replaced with modern copper or plastic pipes to provide much-needed peace of mind and to minimize the cost of home insurance.
Your home's electrical system plays a major role in the odds of a fire. There is a greater chance of overloading and a resulting fire with an electrical system that is 50-amp service and/or knob-and-tube/aluminum wiring. Upgrade the system to safer copper wiring along with 100-amp service to enjoy a reduced home insurance premium. Add new wiring to your home and you can enjoy a home insurance savings of 10 percent or more.
Install safety devices in your home and you will reduce the odds of damage caused by fire, smoke, burglars and so on. Examples of such safety devices range from a burglar alarm to fire extinguishers, smoke detectors, new locks, etc.
Larger homes are more expensive to insure as they are more valuable. Opt for a ranch home or one with two stories and you will likely enjoy a cheaper home insurance rate.
Those who run a business from their home will likely pay more for home insurance. Running a business from home can result in all sorts of liabilities for the home insurer ranging from a client/colleague's slip and fall to stolen business equipment, malpractice lawsuits and beyond. Unoccupied homes usually cost higher to insure.
Homeowners with a sound bill of mental and physical health as well as those who are non-smokers will likely pay less for home insurance. On average, non-smokers pay about five to 15 percent less for home insurance than smokers. This makes sense as smokers are more likely to cause a fire than non-smokers.
It seems like your credit score plays a role in almost every aspect of your life. A poor credit score will likely result in a higher home insurance rate as insurers use credit ratings as a gauge of determining which customers are most likely to file a claim . Rebuild your credit rating and you will eventually have access to home insurance with a lower premium.
Certain special discounts are available. Install a monitored system in your home that detects fire and/or intruders and you will likely enjoy a lower home insurance rate. Group your insurance policies under the same provider's umbrella and you will likely enjoy a reduced rate as the insurer will make that much more of a profit from your combination of coverages. Stay with your insurance company for a long time and you can enjoy loyalty discounts.
Roof age and Warranty
A home with an aged roof will cost more to insure than one with a newer roof. This is due to the fact that newer roofs are more likely to endure the wrath of a storm and emerge without extensive damage. Have your home re-roofed, notify your home insurance provider and you will likely enjoy a nice discount. The installation of impact-resistant roofing will likely reduce your home insurance policy by 5-10 percent.
Raising your deductible to an amount you can manage by yourself will have a huge impact your home insurance premiums. Opting for a $5000 deductible in place of a $500 one can reduce your premiums by as much as 30%.
Value of your home
Homes with expensive content, furniture will cost higher to insure. Make sure you only opt for coverage required to rebuild your home and not for its entire market value, to save on your home insurance
These are the factors that generally affect your home insurance rates. Every company calculates risk in a different way and quotes a different price. So it usually pays to shop around and get quotes from multiple companies before deciding on the insurance provider. Enter your zip code and click “Go” on the top of the page to get multiple free quotes.
Home Insurance Based on Geography
The average cost of a homeowners policy in the United States runs a little over $1,000. That is a very reasonable price when you consider the magnitude of the coverage and that health insurance is more than double that figure on average. If you look at the cost of homeowners policies in terms of geography, severe weather seems to be the primary reason for higher prices. According to the Insurance Information Institute, the states with the highest rates based on 2014 data were:
1) Florida: Due to high number of hurricanes, Florida consistently incurs the highest premiums at approximately $2,055. Homeowners in the southern most areas tend to be the hardest hit by severe weather and policy costs reflect the large number of claims filed due to property damage.
2) Texas: The Lone Star State generally ranks among the top 3 for high rates and averaged $1,947 in 2014. It suffers a variety of catastrophic weather issues such as hail, hurricanes and tornadoes.
3) Louisiana: The Big Easy may be best remembered for the devastation caused by Hurricane Katrina. It’s vulnerability to hurricanes and flooding keep it ranked as a costly state for homeowners insurance with an average price of $1,847.
4) Oklahoma: The average Oklahoman paid about $1,772 and the primary reason is that the state is considered “Tornado alley.”
5) Mississippi: Like neighboring Texas, Mississippi suffers from three major severe weather problems — hurricanes, tornadoes and flooding. These factors tend to keep policies in the top 5-10 nationwide. Other Top 10 states regularly include Alabama, Rhode Island, Kansas, Connecticut, and New York. By the same basic reasoning, insurance premiums tend to be lowest in states that seldom experience home-damaging storms and extreme weather. Ranked from the lowest premiums, they include: 50) Oregon ($574), 49) Idaho ($590), 48) Utah ($634), 47) Wisconsin ($686), 46) Washington ($695), 45) Nevada ($704). Apparently, the same adage Real Estate agents use of “location, location” also holds true for the cost of homeowners insurance premiums.
Total Loss Dilemma Confronting Homeowners
One of the fundamental problems that homeowners face is adequate insurance. Having a policy that covers severe weather damage such as hurricanes, tornadoes or even sinkholes may not actually ensure “full” coverage. It’s important to understand that insuring your home against total loss means having enough coverage to rebuild. Today’s construction costs may exceed the value of your property and coverage limits.
This idea may seem counterintuitive to many people. Construction costs are based on the current value of labor, materials, permitting and other factors. Home replacement may also require demolition, debris removal and bringing a new home into compliance with current building codes. Average home-building costs run about $150 per square foot and that number varies from region to region.
Home values, on the other hand, are driven by market fluctuations, interest rates and other factors. Think about how values dropped after the housing bubble burst. That decrease in value had little to no effect on construction costs. A secure policy is one that takes into consideration the square footage of a home, as well as extraneous costs, and has a limit that will fully rebuild in the event of total loss.
Reasons For Homeowners Policy Cancellations
Like most products that people purchase in the U.S., insurance is not a right. An insurance company does not have to sell you a policy and it has the right to drop you under certain reasonable circumstances. These may include:
Excessive Claims: If you file too many claims, the carrier may deem that you are too great of a liability.
Home Disrepair: When a structure is not properly maintained, the risk of a loss increases. Insurance companies have an expectation that you will take reasonable steps toward upkeep and repair.
Missed Payments: Failure to make timely payments can result in a policy cancellation. It’s no different than not paying a phone bill.
Criminal Risk: The discovery of a criminal record, moral turpitude or making false declarations on your policy application are all reasons a company may terminate.
Safety Hazards: Missing smoke detectors, handrails and the home not meeting building codes are reasons for a cancellation.
The fact that one company decides to terminate your policy does not prohibit you from gaining insurance elsewhere. Issues such as disrepair and safety are correctable, but other problems may cause you to pay a higher premium.
Companies that provide homeowners insurance generally use the same data and arrive at similar premiums. Carriers that enjoy large market share may be able to offer somewhat lower rates. At the end of the day, the best company for a consumer may be one with a good reputation for paying legitimate claims in full. In other words, weigh the risk of working with a particular company as if you have suffered a loss.