How Insurance Companies Calculate Your Home Insurance Premiums
If you want to reduce your premiums, first you have to understand what makes them go up.
Insurance involves the pooling of funds from many customers to pay for the losses that some customers may incur. The premium that is determined is based on the likelihood of how frequently events may happen.
At Intact Insurance we take a unique approach to determining what your home insurance will cost. We look at all your needs and your lifestyle and determine a price based on your property, contents and personal experience that is specific to you. We consider many variables that differentiate you from any other homeowner.
Ways to Reduce Your Insurance Premium
Many factors act together to determine the premium you pay. Below are actions you can take to better protect you and your home, and reduce your premium.
Evaluate your coverage needs each year
Your homeowner’s insurance coverage should accurately reflect your home's current value and condition, as well as any major improvements or purchases.
Implement fire, theft and water damage preventative measures
These include but are not limited to: installing alarm systems, water sensors, main line backwater valves, alarmed sump pumps, and tankless water heaters, as well as performing regular maintenance to your electrical, plumbing, heating systems and roof.
Ask about discounts you may be eligible for
Talk to your broker to find out if you qualify for any additional discounts such as those for being mortgage or claims free.
Consider buying homeowners and automobile insurance coverage from the same company.
Don't switch insurance companies before the end of your policy term
If you wait until your policy is renewing, you may avoid a cancellation penalty.
Use your good credit
Where permitted, allowing your broker to soft check your credit can result in preferred pricing. Intact Insurance will only use this information to help determine your premium; we will never raise your rates or cancel your policy because of it.
Determine how much coverage is enough
Work with your broker to determine exactly what level of coverage you need for coverage options that might have some flexibility such as how much you are covered for sewer back-up coverage.
Pay your premium annually
This will allow you to avoid any service fees or interest charges.
How Premium Dollars Are Used
When insurance companies collect premiums, that money is used to pay for claims, government taxes, and to cover costs related to operating a business. Insurance companies also set aside a large amount of this money, called a reserve, in order to respond quickly should a catastrophe occur, which would result in a large number of claims in a short period of time.
The remaining money that is not needed on a daily basis is invested by insurers. Investing the money is necessary because it allows insurance companies to offset the large costs of claims by making a return, and the insurance industry has always generated positive investment returns.
Premiums and Deductibles
Most insurance policies have a deductible; deductibles are the portion you agree to pay when you need to make a claim. It is then deducted from the amount of your claim that your insurance company pays. Therefore, it is your part of the cost of a claim.
You can reduce the amount of your premium by increasing your deductible amount. But it is essential to weigh your options carefully when choosing a deductible amount. Talk to your insurance broker about the deductible level that is right for you.
Factors Considered in Determining Your Home Insurance Premium
Some of the factors we consider when calculating your premium:
- Where you live - Some locations have a higher risk of crime, burglary, sewer back-up and weather related events, resulting in a higher premium.
- How close you are to fire-fighting support - Urban areas are closer to fire-fighting support, generally resulting in a lower premium.
- How much protection you require - If you need or want more insurance protection for your home and property, then your premium will be higher than someone who needs or wants less protection.
- The age of your home and the home’s condition - Property rates are generally lower for newer homes because the plumbing, wiring and roofs generally have fewer problems, which means fewer claims.
- If you live or work in the home - Empty or unoccupied properties are more prone to vandalism and theft. Also, running a business or having tenants results in a higher premium due to additional items in the home.
- How many claims you have made - The greater number of years claim free, the greater the reduction in your premiums.
- How long you have lived at your current address - Statistics show that customers who have lived in the same residence for longer periods of time make fewer claims. This can contribute to a lower premium.
- Maturity - As you age, your premium amount will typically decrease.
- Loss prevention - Investing in devices to protect against burglary, fire and water damage can lower your insurance costs either directly via a discount or by preventing and minimizing losses, which results in fewer claims.
- If you own your home outright - If you own your home completely without any mortgages, you’ll have more money to maintain your home, resulting in fewer claims. This can be a factor resulting in a lower premium.
- How your home is heated - Homes that use oil as their primary heat source and wood for secondary heat source tend to have more fire claims and will therefore increase your insurance premium.
- If your home is built for or used by multiple families - If your home has more than one self-contained living unit, or you share your property with unrelated individuals, it may be considered a multi-family dwelling. In these instances, there are more items that need to be covered by insurance and more opportunities for larger claims.
This article was originally published on Intact.ca. Intact retains all copyrights.
Written by Intact Insurance