How Are Your Home Insurance Premiums Calculated?
For many homeowners there is much confusion as to how their insurance premiums are determined by insurance companies. Although different insurance companies can have their own ways of calculating rates, in general it comes down to the costs associated with repairing your home after accruing any damages.
But what factors specifically are insurance companies focusing on in determining your premiums?
Factors That Determine Your Home Insurance Premiums
Whether home or auto insurance, your insurance premiums are usually calculated based on the risks and costs associated with making a claim. Insurance companies determine your home insurance premiums based on the following common factors:
Your home’s location. Where you live is a key factor that influences your home insurance premiums. For example, if you live in an area that is prone to natural hazards (i.e. seasonal flooding, high winds, tornadoes), or your neighbourhood has a high crime rate, you can expect your premiums to be higher. Another factor taken into consideration by insurance companies in determining your home insurance premium is the number of claims made in your area by other homeowners.
The age of your home. Over time buildings simply deteriorate and become less stable, and this risk greatly influences your insurance premiums. Owners of newer homes pay lower premiums and can expect their premiums to go up as the home ages. This is based on the likelihood of encountering certain issues such as: leaky roofs, older wiring, faulty pipes, and cracked foundations.
The type of heating system in your home. How you heat your home also influences your insurance premiums. For example, if you use a wood stove to heat your home, the risks associated with a fire are greater. Other heating systems, like oil, are more prone to leaking and damaging your surroundings in comparison to electric and gas heating.
The type of basement in your home. Finished basements can be a great addition to your home if you are looking to expand the living space within it. However, your insurance premiums will be higher as the costs associated with repairing a finished basement can be significant compared to an unfinished basement. Think about the items in your finished basement and their replacement costs in the event of a claim.
Your home's proximity to a fire hydrant or fire station. In the event of a house fire, the risks of damage can be mitigated if your home is closer to a fire station or a fire hydrant. During a fire, timing is most important. If you have a source of water nearby or a firefighting crew in your neighbourhood, your insurance premiums would certainly be lowered.
How Can I Lower My Premium Even Further?
There are certain ways of lowering your home insurance premium even more. Most often, home improvements reduce the risk of experiencing problems in your home, which decreases the likelihood of making a claim. Insurance companies look favourably on homeowners that upgrade the following: your plumbing, your heating system (from oil or wood to gas or electric). You can also expect a lower premium if you install a sump pump, or a security camera.
If you are looking to insure your home and would like to get more information on how you can keep your premiums low, please contact us today and we will be glad to help you.