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Factors Affecting Your Home Insurance Rate

By Gary Bangstad on April 12th, 2010
Homeowners Insurance

According to the Property Casualty Insurance Association of America (PCIAA), there are multiple factors that determine your homeowners insurance rate. You may be able to control some of these factors to lower your premium.

Before You Buy, Know the Territory

The Insurance Information Institute (III) advises that the neighborhood, type of construction, and home's condition, "Have a dramatic effect on what you pay for insurance." If you live in a neighborhood where there are frequent burglaries or wildfires, your home insurance rates may be higher than normal. Before you buy, it is wise to budget for your home insurance--just as you would budget for your mortgage.

Knowledge Is Power

Information about how your policy works may guide you to lower your insurance rates. The PCIAA says that the following are factors that determine your home insurance rates:

  • Coverage and policy limits: Amount of coverage and limitations on all your buildings and property
  • High deductible: Because higher deductibles lower the insurer's risk, the III states that you may save as much as 25 percent by raising your deductible from $500 to $1000. Build a savings account to pay off smaller claims yourself, while insuring against major losses
  • Claims history: More than two claims in four years may increase your premiums
  • Loyalty: Maintaining an insurance policy with the same insurer for an extended period of time may save you as much 5 to 10 percent
  • Multiple policy discount: Using the same insurer for your auto and home insurance may result in a discount
  • Credit Score: Many insurers believe that your credit rating speaks to your reliability. Insurance companies also state that there is a correlation between credit history and the number of claims filed
  • Education and occupation: Some insurance companies find a correlation between educational level and the inclination to maintain property. Furthermore, people in some occupations are more "risk averse" and take steps to avoid or minimize loss. Finally, people that have high paying jobs tend to file fewer insurance claims
  • Scheduled property: Scheduled personal property insurance (SPP) is an addition to your homeowners insurance to cover valuable items such as jewelry, watches, furs, paintings, cameras, silverware, musical instruments, etc. These items would not be fully covered on your regular policy without the SPP
  • Protection class: A Public Protection Classification (PPC) determines the fire suppression rating of the area in which your home is located
  • Policy form: Most home insurance policies are based upon forms developed by the Insurance Services Office (ISO) or the American Association of Insurance Services (AAIS). These forms are numbered and represent the least amount of coverage to the most comprehensive policy
  • Age or condition of dwelling: Older homes tend to be more expensive to insure
  • Home business or mature homeowner discount: Those who work from home, or "mature" homeowners (depending on the insurer generally those in or near retirement), are at home more often and may have a decreased risk of burglaries or fires

Avoiding Large Insurance Claims

Home safety is the key to protecting your family, and as a bonus, you may be able keep your insurance rates low at the same time.

Following are some important safety measures:

  • Install smoke and heat detectors near sleeping areas
  • Use fire resistant building materials
  • Take advantage of non-smoker discounts
  • Take advantage of home security discounts, such as deadbolts and burglar alarms
  • Maintain your home by keeping your electrical, heating, and plumbing in good repair

By taking these simple steps, you may keep your loved ones safe while saving on your homeowners rates.

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