Buying homeowners insurance is not easy. The homeowners insurance shopping process can be frustrating, complicated and confusing. Sometimes it’s hard to accurately compare rates, since coverage is often not identical from one insurance company to another.
However, to help you understand the factors insurance companies use to determine your homeowners insurance rate, I’ve listed the top ten factors that affect your homeowners insurance rates.
1. Geography. The further your home is from a fire station, the higher your premium will be. Therefore, homes in cities, where fire stations are close, will have lower rates than homes in rural areas.
2. Construction. Homes built with non-flammable materials like brick, stone, and concrete have lower rates than homes built with flammable materials like wood.
3. Age. The age of a home probably has less of an effect on rates than any of the other factors. Some older houses are very well built and some newer houses are built quite cheaply. More important is…
4. Value. When calculating the value of your home, skip the value of your land. Consider only the replacement cost of the home at current prices.
5. Occupation. A single-family home will have lower costs than a duplex. But if you operate a business from your single-family home, the premium will increase.
6. Contents. The insurance company usually calculates the value of your personal property as 50% of the value of the home. Therefore, if your personal property is worth more than that amount, you must increase the limits of the Contents policy.
7. Limits of Liability. Homeowners insurance is a combination policy with a built-in minimum limit of liability. I recommend that you increase your liability limits significantly above the minimum. Jury awards in liability claims can run into the hundreds of thousands of dollars. A minimal limit of liability will leave you dangerously unprotected.
8. Limits on Additional Living Expenses (ALE). The ALE is typically 20% of the housing limit. Therefore, increase the ALE limit if you think it is too low for your needs. It usually is.
9. Deductibles. The deductibles you choose will have a significant effect on your insurance rates. Generally, the higher your deductible, the lower your rate. Always choose the highest deductible that your budget allows. Then, set aside a deductible in your savings account to ease the financial pressure on your deductible choice.
10. Claims History. If your home is clear of prior insurance claims, you’ll get the best insurance rates. If you have had prior insurance claims, the insurance company will consider them when calculating your premium.
A change in any of these top ten factors can cause your homeowners insurance premium to change. Be sure to fully disclose the correct information about each of these factors to your agent. That way, you’ll be more certain of getting the lowest possible homeowners insurance rates.
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