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8 Factors that Affect Home Insurance Premiums

Home Insurance

By Romana King | October 13, 2015

Your home isn’t only where you live, the place you relax (and maybe even work), it’s also a part of your overall net worth. Unexpected events, storms and natural disasters can pose a risk to your home, be traumatic experiences and result in a significant financial burden. Home insurance is designed to help protect your home and reduce the financial impact of such events on you and your family.

Many homeowners are off-put by the cost of home insurance. This article explains eight factors that affect home insurance premiums and why your rates may increase year over year:

  1. The rebuild cost of your home.
  2. The construction material of your home.
  3. The age of your home and roof.
  4. Access to fire protection services.
  5. Claims history in your area.
  6. Your personal insurance history.
  7. Your coverage options.
  8. External factors.

We’ll discuss each of these factors that affect home insurance premiums in more detail below.

#1. The rebuild cost of your home.

The cost to rebuild your home is not the same as the purchase price or market value of your home. The rebuild cost of your home includes:

  • Debris removal.
  • Cost of materials.
  • Cost of labour.
  • Delivery of materials.

Prices fluctuate based on demand and the costs of materials and labour. The rebuild cost of your home directly affects your home insurance premiums as that’s how much money an insurance company will have to pay out to repair or rebuild your home in a covered claim.

#2. The construction material of your home.

Your home’s bones and exterior finish make a difference—a big difference. For example, a home with a stucco or brick exterior finish will be cheaper to insure than the same home with vinyl siding. This is because stucco and brick offer far more protection than vinyl (particularly with hail and fire damage).

The construction material will also contribute to the rebuild costs of your home. It indicates the likelihood of a claim or how extensive damage will be if a certain peril occurs.

#3. The age of your home and roof.

Older homes tend to have more outdated construction methods and systems. These can sometimes carry risks. For instance, an older home with knob-and-tube electrical wiring has a much higher chance of experiencing an electrical fire than a home with the latest electrical wiring system. Heating, electrical and plumbing systems are the most important to look at when buying an older home. You’ll want to ensure these are updated properly – in some cases, this is required before you can get insurance coverage.

Some features and materials in older homes may also not be available today or much more expensive to replace. This contributes to your rebuild cost and is a reason older homes can be more expensive to insure.

Finally, the age of the roof is an important factor. The older the home, the older the roof and the more likely it is vulnerable to damage and less effective at doing its job. Asphalt roofs should be replaced every 10 to 20 years; other roofing materials can last longer. If you’re buying an older home, make sure you check on the age of the roof. Some insurers require the roof to be replaced within a certain timeframe or you will be unable to get coverage or have limited coverage. The older the roof, the more likely your premiums will be higher as well.

#4. Access to fire protection services.

Your home’s access to fire protection services determine your home insurance premiums. The closer you are to a fire hydrant and fire station, the lower your rates will be. This is because the further you are away from these fire protection services, the longer it will take for a fire to be put out. The longer a fire burns, the more damage it causes.

This is particularly important for rural properties as fire services tend to be less accessible.

#5. The insurance claims history in your area.

Insurance companies look at your neighbourhood to see how frequently claims are made. If your neighbourhood gets hailed on a lot, there will be a lot of claims and your home insurance premiums will be higher. They look at weather events, crime rates, and industry claims information. There’s not much you can do about this factor other than to research a community before you buy.

#6. Your personal insurance history.

Insurers like clients who’ve stayed insured and had few claims. They look at your payment history, your insurance history and your claims history to help determine your rates. Customers who’ve missed payments, have gaps in insurance coverage, and have a lot of claims will pay much higher rates. In some cases, an insurer may not even want to insure you!

Being a responsible homeowner who pays their bills will go a long way to helping keep your rates as low as possible. You should also only submit insurance claims if you can’t cover damages out of pocket.

As a bonus, if you’ve been claims-free for years, you may get a discount or have your deductible waived when you do have a claim.

#7. Your home insurance coverage options.

The coverage you choose for your home insurance affects your home insurance premiums. This is why cheapest isn’t always the best – you may be paying the least per year for your insurance, but how protected are you?

We recommend working with an insurance broker to determine which coverage you actually need and to make sure you’re adequately insured. You don’t want to pay for protection you don’t need, but you don’t want to be left with inadequate insurance should something happen.

Generally speaking, of course, the more insurance you have, the higher your home insurance premiums will be.

#8. External factors.

There are some external factors that insurance companies look at to determine home insurance premiums that are completely out of your control. These factors also contribute to rising rates for insurance across Canada. This includes the increasingly frequent natural disasters and extreme weather events that have affected communities across the country.

Home insurance claims have soared in recent years with payouts doubling every five to ten years since the 1980s. Payouts have gone from less than $100 million per year to over $3 billion a year in just three decades.

There are also increased rebuilding costs as bigger and fancier homes are being built. Aging infrastructure is another contributing factor to the severity of these events.

What’s the result? Expect to pay more for your insurance in years to come and don’t be surprised if premiums continue to rise even if you don’t make a claim.

All of these factors and many more contribute to the cost of home insurance. Our best recommendation is to price shop (get multiple quotes from different insurers) and invest in damage mitigation measures to protect your home. If you’d like to get a home insurance quote or learn more, please contact one of our brokers.

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