Factors that Influence Home Insurance Quotes

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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

Home Insurance Factors

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

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.