Why are my friends home insurance rates so much different than mine? We live in similar neighborhoods and our homes are about the same size!
We get this question all the time and thought it would be beneficial to review a few of the many rating factors that affect home insurance premiums.
- Amount of Dwelling Coverage - While seemingly obvious, the majority of a home insurance premium is derived from how much coverage for which a home is being insured. More coverage on a home subsequently results in a higher premium.
- Insurance scores - Beginning in the not so distant past, insurance companies started using the insurance score as a significant rating factor. While loosely based off of credit scores, the insurance score is not intended to measure creditworthiness but rather to be a predictor of risk. Ranging from around 150 to 950, a higher insurance score indicates you are statistically less likely to file a claim.
- Protection Class - Insurance companies take into consideration how difficult it would be to put out a fire should a home go ablaze. Protection classes, ranging from 1-10, are mostly made up of distance to a fire department and distance from a fire hydrant.
- Age of Roof/Utilities - Many home claims arise from faulty roofs and while having a decent roof is necessary to even obtain coverage, the age of the roof is taken in to premium considerations. The age of updates to plumbing, electrical, furnace, etc. can also affect your home insurance rates.
- Claims History - The cause of a claim and how much money was paid out will significantly affect home insurance premiums. A neighbor with all other rating factors the same, may have lower premiums due to being claim free.
- Endorsements - Not all home policies are the same. Many endorsements can be added to upgrade a home policy to ensure that it adequately protects the needs of the homeowner. A few examples include replacement cost coverage on personal property, identity fraud expense coverage and sewer or sump pump backup coverage.
- Deductibles - The amount paid out of pocket by the insured due to a claim alters home insurance premiums. The higher the deductible, the lower the premium.
- Credits and Discounts - There are many available group programs that can lower premiums, such as credit union membership, being a college alumni, mature group discounts and multi-policy discounts.
While these are a few of the major considerations in home insurance premiums, it is certainly not an all-encompassing list. It is important to remember that home insurance is not a commodity. One size does not fit all. While it may appear on the surface that all home policies are the same, we will work to make sure that each policy adequately covers the risks unique to each individual. While a friend may have a house that looks similar, keep in mind that there are numerous factors affecting a home insurance premium.