What Factors Affect Home Insurance Costs?
Choosing the right home insurance is one of the most important things you can do when it comes to protecting your property. But have you ever wondered why your friend in another city pays less for similar coverage or why your premiums might have changed when you renewed your policy?
Understanding what drives these costs can lead to substantial savings. And if you're a real estate agent, it's good to know these ins and outs to help your clients seal the deal. In this blog, we'll explore the different factors that can influence home insurance costs, from the location and age of your property to your personal claim history and even local weather patterns.
What Does Home Insurance Cover?
If a prospective client asks, “What does home insurance cover?” you should proceed to tell them that, in general, home insurance covers their home in case of certain types of natural disasters such as fires, lightning strikes, and even wind.
The cost of home insurance coverage varies depending on several factors that we’ll detail below. However, homeowners can customize their coverage based on their budgets or upgrade it to cover “extras” such as detached structures, personal property, and accident liability, too!
11 HOMEOWNERS INSURANCE COST FACTORS
Suppose one of your prospective real estate clients is apprehensive about getting homeowners insurance. In that case, it will compromise their ability to secure a mortgage. thereby compromising your ability to make a sale! So, here’s a quick list of major factors affecting premiums.
1. ATTRACTIVE NUISANCES
“Attractive nuisance” is just a fancy way to refer to non-essential perks included or added to a property. These can include swimming pools, playgrounds, and more.
Although attractive nuisances add to a property’s value, they also increase the likelihood of liability claims. Accordingly, homeowners insurance covering attractive nuisances comes at a premium.
2. CONSTRUCTION AGE
“If something happened to the home, how much would it cost to rebuild it?” That’s a big question insurance companies try to answer when calculating premiums.
Older homes may be more susceptible to damage from the elements or simple wear and tear, and parts and components to repair them may be harder to come by, so an older construction may be costlier to insure.
However, home improvements like roofing upgrades and plumbing overhauls may reduce the likelihood of a claim, which will reduce insurance rates.
3. IN-HOME BUSINESSES
With the growing trend in remote work and work-from-home employment, an increasing number of people are running their businesses out of their homes.
For insurance companies, this means there’s equipment, inventory, and electronics to cover, all of which don’t qualify as “personal property.” Home-based business owners may need to consider an additional layer of coverage to protect their work-related property from theft, loss, and natural disasters.
4. PROXIMITY TO EMERGENCY SERVICES
Insurance companies consider every possibility when calculating rates, even how close a home is to the fire department or how far it is from a fire hydrant.
After all, fires can completely obliterate a home in a matter of minutes; the sooner the firefighters get there, the less damage an insurance company will have to cover.
5. CLOSENESS TO A BODY OF WATER
It is not uncommon for homeowners’ insurance providers to charge extra for wind and hail or flood coverage, particularly in areas that are prone to hurricanes.
Whether you and your clients find yourselves in one of those areas or not, the closer a home is to a body of water, be it an artificial pond or the coastline, the higher you can expect insurance rates to be.
6. WOOD-BURNING STOVES
That wood-fire stove looks great on the property listing, but to the insurance company, it’s just another liability. Although wood-burning stoves may help lower gas and electricity costs, they may also raise homeowners insurance prices.
Advise your clients to talk to their insurance agent about any fire safety measures they’re taking regarding their wood-fired stoves. Something as simple as fire hydrants and stove inspections performed by licensed contractors may help reduce their rates.
7. LOCATION
From natural disasters to crime rates, every location has its unique challenges and risks, all of which home insurance companies use to calculate rates.
Not only does the location of a home affect the likelihood of a claim, but it also affects how much it’ll cost to cover that claim due to labor costs, material, and regulatory costs in the area!
8. CLAIMS HISTORY
Comprehensive Loss Insurance Underwriting Exchange or C.L.U.E. is to homeowners insurance as reporting bureaus are to credit. C.L.U.E. keeps policyholders’ claims histories dating back seven years.
Most insurance companies use applicants’ claim histories to uncover the frequency and severity of a person’s prior claims, as they are closely correlated to the likelihood they’ll make a claim in the future. Just like a bruised credit score, a bruised claims history may increase homeowners insurance rates.
9. CREDIT SCORE
Speaking of credit, homeowners’ credit scores may have an impact on the cost of insurance. This is because some insurance companies argue that there’s a correlation between a low credit score or bad credit history and the likelihood of making a claim.
The good news is that some states, such as California and Massachusetts, have banned the practice of using credit as a factor in home insurance pricing.
10. CONSTRUCTION MATERIALS
Insurance companies are all about reducing their own liability, so it’s unsurprising that they favor homes with “sturdier” construction materials. For example, wood and stucco are more susceptible to pest- or weather incident-related damage than brick and cement.
Accordingly, homes built with what insurers consider more durable materials will likely be cheaper to insure, particularly in areas where the incidence of pest and weather-related claims are lower.
11. DEDUCTIBLE AND LEVEL OF COVERAGE
Like most other types of insurance, homeowners policies come in a variety of coverage levels with a wide range of deductibles.
A good rule of thumb for those in the home insurance market is that higher coverage equals higher premiums. While their yearly premiums may be lower, policyholders who go for a high deductible, low coverage policy must be prepared to pay a sizeable amount if and when they make a claim.
Reducing Homeowners Insurance Costs
To reduce homeowners insurance costs, it's effective to shop around for competitive rates, consider increasing your deductible, and bundle policies where possible. Enhancing a home’s security with systems and robust locks can lower premiums, as can updating critical infrastructure like plumbing and electrical systems to reduce risk.
Additionally, regularly reviewing coverage to ensure it matches a home’s current value, maintaining a good credit score, and inquiring about various discounts for things like being claim-free or making energy-efficient upgrades can all contribute to lowering your insurance expenses.
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