What You Should Know About Homeowners Insurance Premiums
Homeownership is a significant investment, and protecting it from unexpected events is critical. Homeowners insurance provides this protection, but it comes at a cost. Understanding what goes into determining your premium is essential, as it can impact the level of protection you receive and the amount you pay for it.
In this article, we’ll discuss what you need to know about homeowners insurance premiums, including why they are necessary and what factors influence their cost so you can better understand how to manage them.
What Does Homeowners Insurance Cover?
Homeowners’ insurance policies vary, but most policies cover damage to a home’s structure and its contents from natural disasters like fire, wind, hail, and lightning. These policies also cover damages caused by theft, vandalism, and other incidents that may happen on the property. Some policies also include liability coverage, which covers damages and legal fees if someone is injured on your property or if you damage someone else’s property.
How Do Insurance Companies Determine Premiums?
Let’s explore each of these factors in more detail.
- Location: The location of a person’s home is one of the most important factors used to determine their premium. Insurance companies consider the risk of natural disasters, such as earthquakes, hurricanes, and floods, as well as crime rates in the area. Those who live in high-risk areas will generally pay more for coverage. For example, homes in flood zones or areas prone to wildfires may have higher premiums.
- Age and Condition of the Home: The age and condition of a home can also affect the premium. Older homes or homes that are not well-maintained may have a higher risk of damage, so their premiums may be higher. Insurance companies may also consider the type of construction materials used when calculating the premium. Homes made of fire-resistant materials like brick or stone are likely to have lower premiums than homes made of wood.
- Coverage Limits: The amount of coverage a person chooses for their policy also affects the premium. Those who choose higher coverage limits will generally pay more for coverage. For example, a person who chooses a policy that covers damages up to $500,000 will pay more than one that covers damages up to $250,000.
- Deductible: The deductible is the amount of money a person must pay before their insurance policy kicks in. Policies with higher deductibles generally cost less, but they require the homeowner to pay more out-of-pocket if they need to file a claim. A person who chooses a high-deductible policy may pay lower premiums than a low-deductible one.
- Credit Score: In some cases, insurance companies may use a person’s credit score to determine their premium. Those with a lower credit score may pay more for coverage. Insurance companies believe people with lower credit scores are more likely to file claims. However, not all insurance companies use credit scores to determine premiums, and some states have banned the practice altogether.
- Claims History: Insurance companies also consider a person’s claims history when determining their premium. Those who have filed multiple claims in the past may pay more for coverage. This is because insurance companies believe that people who file multiple claims are more likely to file additional claims in the future.
- Discounts: Insurance companies offer discounts for various reasons, including having a security system installed, having a good credit score, or being a non-smoker. These discounts can help lower the premium. For example, a person who installs a smoke detector or a home security system may be eligible for a discount on their premium.
There is much to know about homeowners insurance premiums; understanding how it works can help you make better decisions. The more you know about your insurance, the better you can manage it and ensure adequate coverage. We hope this article has provided useful information when looking for coverage or reviewing your current policy.
At Kirkham Insurance, we can help you understand your coverage options and the value of each. As home insurance brokers in Lethbridge, we can help you find the right policy for your needs. Contact us today to learn how we can help you manage your premiums and get the best coverage possible!