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.