When you buy a home, you will almost certainly be required to purchase homeowners insurance. However, you will have to pay a regular premium in order to maintain your coverage. It’s only natural, therefore, to want to pay as affordable a price as possible for this essential benefit.
Your insurance agent is happy to work with you to get you the most affordable benefits possible. However, there are still going to be scenarios where you might see your premiums increase. Though you might of course see rate increases following policy claims, there are other scenarios that might trigger a higher premium the next time you renew your policy. Let’s take a closer look at why this might occur.
What’s Your Home Insurance Premium?
An insurance premium is simply the cost you pay for your policy. When you buy a home, you will have to factor the cost of your premium into your overall budget. You must continue to pay for your plan to continue to receive coverage.
Most insurers base your premiums on a risk profile, which they calculate by gauging how likely you are to file a claim, and how much a claim is likely to cost them. Compared to other clients your cost risk to the insurer might be higher or lower, and your premium might need to be adjusted accordingly.
Some of the factors that will influence your risk profile might include:
-
The cost and value of your property
-
The types of coverage you buy
-
How high you set your coverage limits
-
How high or low you set your damage deductibles
-
Your credit score
-
The home’s age
-
The home’s location
-
Crime, storm and other property damage risks in your area
-
The proximity of the home to fire houses or police stations
-
Your history of making claims on your insurance policies
-
Whether you have ever let any policies lapse due to non-payment
So, suppose that in the last year, you have made a lot of small claims on your homeowners policy. For each claim, your insurer has had to pay out a settlement. You have wound up costing the insurer money, perhaps even on costs that you might have been able to pay for yourself.
As a result, the cost risks that you have caused the insurer might put you on the list of high-risk customers. Your insurer might have to charge you more simply to make up this investment. Still, your rates might drop once again as time passes and you don’t file further claims. Insurers often don’t track claims forever, so this particular cost adjustment might only be temporary.
Still, every time that you renew your home insurance policy (usually you must do so once per year), you might see your rates go up or down. This might be true even if you have made no claims on your policy. Below, we’ve outlined three reasons why you are most likely to see your rates rise.
You Bought Additional Coverage
At their hearts, insurance policies are based on the principle of supply and demand. If you want more coverage, then you are going to pay more for it. After all, each increase in coverage represents an additional sum of money that your insurer might have to pay you.
While your mortgage lender will require you to purchase homeowners insurance, you are still encouraged to purchase more coverage than just the minimum requirement. The good news is that as you increase your coverage, you will not usually see massive premium increases. Generally, these will be modest compared to any potential benefit you might receive for a claim.
Economic Factors Influence Rates
Sometimes, economics factor into the cost of premiums. After all, like most businesses, insurers will have to periodically adjust rates to keep up with inflation. Additionally, if the insurer experiences a higher number of claims across all consumers year over year, then they might be forced to raise rates on all clients to make up the difference. However, low-risk policyholders often don’t face as significant of a cost burden from these market changes.
Risk Factors in Your Area Change
Environmental and demographic factors in your community will change over the years. Therefore, your home insurance risks might change, too.
Say, for example, that your neighborhood has seen a recent increase in property crime like vandalism, home burglaries and related occurrences. Therefore, the risk your insurer has to take to cover your home might go up. Your insurer might have to make premium increases to cover this new risk. However, this increase might not only affect you, but also others in the area.
If you face an increase in premiums, don’t hesitate to speak to one of our agents to learn more about what you can do to combat these changes. Discounts, changes in your deductible and other actions might help you save money without sacrificing critical benefits. In the end, we’ll ensure that you have as much savings potential as possible.
