8 Dynamics Influencing Homeowners Insurance Premium

HDA Insurance Dynamics

Are you buying a new house? Are you buying an older house? Are you searching for new insurance? Do you know what affects your homeowners insurance? Besides the value of the house, the cost of homeowners insurance is dependent upon a number of factors. It is essential to understand these factors to gain maximum benefits from them. Some of the common factors which affect homeowners insurance directly include:

  1. Age of the house

The newer the house, the better it is for insurance purposes. A new house has new systems and utilities, which means lower risk due to failure of said systems. You can get a lower rate for insurance with a new home where as for an old house, there is substantially more risk thus fetching a higher premium.

  1. Type of construction

Frame built homes are standard code in most areas; however, block or steel construction may produce a lower fire risk.

  1. Location

Geographic location is one of the most important factors which affect the homeowners insurance. Statistics dictate risk factor to insurance carriers; some locations simply have a higher risk factor due to proximity to hazard; on the other hand, some locations will prove to have a higher claims ratio for other reasons (i.e. economic, climate etc…) Due to the location of the house, some areas will call for a higher than normal reconstruction value thus resulting in a higher premium.

  1. Proximity to water

If the house you have chosen is close to a large body of water, carriers may decline the risk or surcharge the home due to increased hazard. In areas deemed an elevated Flood Hazard Area, Flood Insurance may be necessary since homeowners insurance does not provide coverage for flood water damage. Mortgage companies will contractually require a separate Flood Insurance Policy for areas in predetermined Flood Zones.

  1. Local fire protection

Your fire protection class will mainly depend upon the distance between your home and the closest fire hydrant;  also, the distance from the nearest fire station to your house. The fire protection class is a Class Factor that is assigned by the Insurance Services Office for each address; the higher the class (1-10),  the higher the premium.

  1. Risk factors in the house

If your house contains high risk factors, the insurance company may charge a higher premium rate or decline to insure the home. A few factors include:

  • Trampolines
  • Aggressive dog breeds
  • Guest houses
  • Swimming pools with  a diving board or slide
  • Homes not displaying Pride of Ownership
  • Homes with known code violations

In some cases, homeowners insurance will not be available in the ‘Preferred Marketplace’ causing the property owner to seek a carrier specializing in substandard risk or applying to a State Fair Plan designed for homes not acceptable to preferred carriers.

  1. Security

There are many modern day forms of security systems which may avail discounts depending on the State, Insurance Company and program written. Fire Sprinklers, Smoke Detectors, CO2 Detectors, Fire Alarm, Burglar Alarm, Motion Sensors, Water Flow Sensors, Flood Sensors, Gated Communities and Guarded Communities are just a  few examples of security which ultimately lowers the insurance carrier’s risk factor thus lowering premium.

  1. Your claims history

Even if you buy a newly built house, some carriers will penalize you based on your prior claims history; some carriers underwrite based on a 3 year history and some carriers go back 5 years. Claims are reported by all carriers to a national database which becomes public knowledge to the industry for the purpose of insurance underwriting. On the other hand, a few insurance carriers do not penalize claims made on a home prior to your ownership. The national database will report Claims to the Specific Property as well as Claims by the Subject Insured party.