Be Aware of Things that Can Affect Your Homeowners Premium

Have you ever wondered how your insurance premium is determined?  Individuals insure property through transfer of risk, whereby the individual pays a relatively small premium to an insurance company for protection against a much larger potential loss.  The concept, although simple, involves a great degree of complexity behind the scenes.  Let’s keep it simple by illustrating a few of the things that can affect how much you pay for insurance.

First and foremost is your credit score.  Typically, you will pay a higher premium for coverage if the insurance company doesn’t trust your creditworthiness.  Some companies will deny coverage altogether if your credit score is too low.  Good credit can assist in keeping your premiums lower.

If you have pets, it might matter.  Most domestic pets are considered fine and don’t necessarily create a heightened risk.  However, attack dogs or breeds that are aggressive by nature and other wild animals not customarily found in most homes can certainly create a higher premium.  Exotic animals, while interesting, are not interesting to the underwriter when analyzing risk.  Don’t be surprised if your German Shepherd is scrutinized during the underwriting process.

Recreational items on your property such as pools, trampolines, climbing walls, etc. can also inflate premiums.  According to the Insurance Information Institute (III), there are approximately 92,000 hospital visits per year for injuries related to trampolines.  Swimming pools account for greater than 1000 deaths per year.  Be sure to mitigate risk by having appropriate barricades which prevent people from using items when you’re not available to supervise.  Additionally, avoid risky behavior while using recreational equipment.

If your home is too far away from the fire department and/or a fire hydrant, it can also create a more expensive policy.  Concurrently, poor maintenance procedures and preparations for weather events, such as heavy snow, rain, winds, etc. can be examined by the insurance company, thus creating increased premiums or even rejection of the property. According to the III, over 17% of losses in 2012 resulted from leaking or freezing pipes and ensuing water damage.  Be sure to inspect insulation, roof tiles, gutters and any other structural components that assist in protecting the home from the elements to ensure that they are in the condition that they should be to perform in normal and severe weather conditions.  Many insurance carriers provide services to assist you in mitigating future risks through a site analysis.

Where you live can make a difference for many reasons.  If you live on the coast, hurricane risks can create higher premiums.  If your neighborhood has a high crime rate, that can also create a higher premium, due to the increased likelihood of a robbery and/or vandalism. 

Finally, the reason you invest in insurance is to protect you from a loss.  While that fact is true, keep in mind that the frequency of claims can have a direct effect on your premium.  Therefore, in order to keep your premiums affordable, prepare your property and your procedures to avoid losses.  That way, when a loss does occur, your insurance company will likely keep you insured at a reasonable premium level.  They do plan for losses; however, they do have limits.  Too many losses and they might send you searching for alternative coverage.

So, while you can’t control all issues that affect your insurance premium, at least now you have a short list of some things you can pay attention to in order to save.

Makes You Want To SHOP Around

If you run a small business, you’ve likely heard of the Small Business Health Options Program, known as SHOP.  As a subset of the affordable care act, the SHOP was created to attempt to assist small businesses in acquiring affordable health care for their employees.  While the intentions are good, many small businesses might find it difficult to participate in the SHOP and receive the tax credits that are part of the program.

Here are a few details that are important to know regarding the SHOP in Illinois for 2015:

·       In order to participate in the SHOP, you must have fewer than 50 Full time equivalent (FTE) employees.

·       For 2015, the employer can only offer one qualified SHOP plan to its employees.[1]

·       In order to take advantage of the tax credit that is available, the following criteria must be met:

o   You must have less than 25 FTE employees.

o   Average earnings for each employee must be less than $50,800.[2]

o   The employer must pay at least 50% of the Employee Only portion of the premium.

o   70% of the employees must participate.

o   Coverage must be made available to all employees.[3]

o   The tax credit requires SHOP Marketplace coverage.

o   If a tax credit is qualified for, it is available for 2 consecutive years and can be up to 50% for for-profit companies and 35% for not-for-profit entities.

As you might conclude from the requirements, there are many small businesses that don’t qualify for a tax credit or for participating in the SHOP at all.  If you’re a very small company with two owners operating the entity and no other employees, the SHOP is really not an option. 

You will be hearing a lot about the SHOP in the coming weeks as we approach Open Enrollment.  While the SHOP might provide a solution for some companies, unfortunately, the hype will disappoint far more as they realize the caveats that come with qualifying for the tax credits. They are not realistic for their circumstance.

Therefore, before you get too excited about the SHOP, it might be wise for you to shop around.  The market, while inflated as a result of new coverage requirements and taxes, provides other alternatives for those that don’t fall into the mold required by SHOP.  And, at least company paid premiums for group coverage are still tax deductible expenses.[4]

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[1] In 2016, it is projected that there will be more choice available for each employee.

[2] The following persons would not be included in computing the number of employees and used in the earnings computation:  Owner, Partner, Shareholder of an S Corp., Owner of more than 5% of another business, family.  The income qualification limit is subject to cost of living adjustments on an annual basis.  The limit was $50,000 in 2014.

[3] This is a requirement to participate in the SHOP, notwithstanding the eligibility for a tax credit.

[4] Company paid premiums for Individual coverage (Not part of a group plan) are NOT tax deductible.