It’s that time of the year when most homeowners will be receiving a notice of premium from their homeowner’s insurance company. Many disregard this notice because their premium is paid through their escrow—but it is important to check this document and compare your next year’s premium to what you are currently paying. It is not uncommon for these premiums to increase as the years pass and your home ages. It is also common for homeowner’s insurance premiums to go up in an area affected by a high number of claims (a common occurrence for many Florida resident’s following an active hurricane season).
What Other Things Are Affecting My Home Insurance Premium?
For homeowner’s who have noticed a small or even drastic increase in their annual premium may be wondering this—what is causing my homeowner’s insurance to go up?
Insurance is the calculated risk of covering a claim for damage against the statistical probability that such a claim could occur. For those who opt for insurance, it is either because it is a requirement for a home loan or the belief that it is better to have coverage and not need it than to go without coverage and have extensive damage occur and need it to afford repairs—or a combination of both.
The initial premium for homeowner’s insurance can often change from year to year, but why?
Here is a list of several factors that could be causing your homeowner’s insurance policy to fluctuate in cost:
- Replacement Cost: This is the amount of money it would take to build the exact same house on the same lot. This amount can vary as the cost of construction material fluctuates and what the home’s value (including the lot value) is rated at. Because this amount can change, reviewing your policy annually against the market can ensure you have enough coverage should your home need to be completely rebuilt after a disaster.
- Deductible: Like any insurance plan, the lower your deductible (your cost-share for a claim), the higher your premium will be. If you increase your responsibility in the cost of repair by raising your deductible, you may see your premium drop.
- Pets: This is most commonly speaks to the breed of dog affecting premium costs, but the type of pet you have (large snake, horse, etc.) may also affect your premium. Select dog breeds and types of pets may be deemed a higher risk for a liability claim. Breeds determined to be statistically more aggressive or large breeds often result in a higher homeowner’s insurance premium.
- Wood Burning Stoves/Fireplaces: Aspects of a home that allow a fire to burn can be calculated as a risk factor. If you have a wood burning stove or functioning fireplace, check with your carrier to see if a professional inspection and/or cleaning of the system will aid in premium reduction.
- Proximity to Body of Water: Homes along the coast are typically more expensive to ensure because of the higher risk for flooding and storm damage their location presents compared to a home in central Florida. Homes closer to lakes or rivers may also see higher rates due to flood risks—even though flood insurance is a separate policy.
- Remodeling: If you updated your policy with the recent renovations you made to your home, your policy premium may increase to cover the increased value of your home.
- Coverage Limits: How much your limits are for select coverage options. Higher liability or personal property limits can increase your overall premium.
- Insurance Score: Just like a credit score, this score can be used to gauge your risk as an insured individual (likelihood of filing a claim) and potentially a low score could cause an increase in premiums or even denial of coverage.
- Credit History: Poor credit doesn’t just affect your interest rates; it can lower your Insurance Score.
- Marital Status: Statistically, married couples file fewer claims than single, widowed, or divorced individuals. This increases their insurance score which can result in a lower rate.
- Age of Home: Older homes are a greater insurance risk. As a home ages, it requires maintenance and the risk for a major repair necessity increases. In addition, building codes and regulations improve over time, affecting the safety rating of your home.
- Materials of Home: Certain building materials are seen as more time-withstanding or damage-withstanding. The cost of the material in the event of a rebuild can also be taken into consideration when determining your premium.
- Swimming Pool: Swimming pools aren’t seen as a repair/replace risk in the event of a disaster but rather are rated a high risk under the liability aspect of a homeowner’s insurance policy.
- Roof Condition: Just like the rest of the house, the age and condition of the roof can greatly impact a homeowner’s policy premium. An old home with a new roof may see rates more similar to a newly built home because of the costs associated with claims for roof damage.
- Proximity to Fire Station: When your home is closer to a fire station or even fire department, that means reprieve is closer at hand in the event of a fire—potentially greatly reducing the amount of damage that will occur before help arrives.
- Claims History: A homeowner who files many claims will likely see an increase in the premium. Filing a claim may be necessary to cover expensive repairs or loss but it can affect your insurance score.
While some of these may make sense or seem a bit unfair, insurance is the mathematical calculation of risk of covering a claim versus a claim actually occurring—and insurance carriers balance their financial risk with insurance premiums. Those who are or live in a home that is a higher risk may have high premiums or see their premiums increase. Speak with an independent home insurance agent to ensure you have the best coverage at a premium you can afford and to check for any policy saving tips!