How Are Home Insurance Rates Calculated
Most homeowners understand the importance of carrying sufficient home insurance, but it can often be costly for those homeowners to get the coverage they need at a price they can afford. As with other types of insurance, the premiums for home insurance can vary quite a bit from company to company, and it can really pay to shop around.
It is also important for homeowners to understand the factors that insurance companies use to determine home insurance rates. Understanding the underlying factors can help take the mystery out of insurance rates and help shoppers get the best possible coverage for the least possible cost.
One of the most important factors used to determine home insurance rates is the location of the home itself. Some parts of the country are more at risk from natural disasters like tornadoes, hurricanes and wildfires, and this increased risk will be reflected in the premiums those homeowners are asked to pay. In addition, homes located in coastal areas are typically more at risk from wind damage and flooding. As a result homeowners in those prime spots may face higher costs when it comes time to insure their dream homes.
The age of the home, and the materials used in its construction, can also have a big impact on home insurance premiums. In many parts of the country newer homes will have been built with stronger construction materials designed to withstand wind damage, earthquake damage and other natural disasters. In parts of the country prone to wildfires new homes are often required to meet rigorous standards, and those improved standards can result in lower home insurance premiums. Owners of older homes may find themselves facing higher premiums due to the age of their dwellings and the poorer quality materials used in its construction.
The value of the home is another important factor in determining home insurance premiums – for obvious reasons. It simply costs more to repair or rebuild a very expensive home than it does a moderately priced one. In addition many home insurance policies promise to provide the true replacement cost of a home declared a total loss, instead of a set dollar amount. This is important, since the cost of replacing a home can increase quite a bit over time.
Of course there is more to determining home insurance premiums than the value of the home itself. Home insurance policies also provide protection for personal property, and highly valuable personal property like artwork or antiques can also affect insurance premiums. If valuable items are acquired after the policy was written it is important to document those valuables as they are purchased. Making a yearly videotape of the home and its possessions – and keeping that videotape in a safe deposit box – is a good practice.
Another important factor that will affect the cost of home insurance is the amount of personal liability coverage the homeowner needs. Personal liability coverage is designed to provide protection to the homeowner in the event someone is injured on the property. This type of coverage provides protection for everything from falls to dog bites, and it is certainly an important consideration. As the amount of coverage rises the premiums can rise as well, but many homeowners like the peace of mind that a large liability policy provides.