Have you ever wondered why your homeowners insurance premium is different from your neighbor’s or why your premium changed from one year to the next?
Insurance companies consider a variety of factors when determining homeowners insurance premiums. While every insurance company uses its own underwriting guidelines, understanding some of the common factors can help you make sense of your insurance costs.
Here are five things that may affect your homeowners insurance premium.
1. Credit History, Where Applicable
In states and situations where insurers are permitted to consider credit-based insurance information, your credit history may be one factor used when determining your premium.
Credit-based insurance information is not the same thing as your overall credit score. It is used as one part of an insurer’s evaluation of risk.
Because rules vary by state and insurance company, it’s important to ask your insurance professional how this factor may apply to your policy.
2. Your Claims History
Your history of insurance claims can also affect how an insurer evaluates your risk.
If you’ve had multiple homeowners insurance claims, an insurance company may consider your property a higher potential risk. The type, frequency and circumstances of previous claims can all be relevant.
This doesn’t mean you should avoid reporting a legitimate claim simply to protect your premium. If you’re unsure whether a situation should be reported, talk with your insurance professional about your options.
3. Updates and Improvements to Your Home
Home improvements can change the cost of insuring your property.
For example, have you recently:
- Remodeled your kitchen?
- Added a bathroom?
- Finished a room?
- Built an addition?
- Replaced your roof?
- Upgraded electrical or plumbing systems?
- Added custom features or higher-end materials?
Some improvements may increase your home’s replacement cost, while others could potentially reduce certain risks.
That’s why it’s important to let your insurance agent know about significant updates to your property. Your policy should reflect the home you actually have, not the home you had years ago.
4. Your Coverage Limits
The amount of coverage you choose can directly affect your premium.
Higher coverage limits generally mean you’re purchasing more protection, which can increase the cost of your policy. But choosing lower limits simply to reduce your premium can leave you financially vulnerable if you experience a major covered loss.
It’s especially important to periodically review your dwelling coverage.
Construction costs, labor prices and the cost of building materials can change over time. If your home’s estimated replacement cost has increased, your existing coverage limits may need to be reviewed.
The goal isn’t simply to find the cheapest policy. It’s to find the right balance between cost and protection.
5. Property Risks
Your home’s characteristics and surrounding property risks can also influence your insurance premium.
Depending on the insurance company and location, factors may include:
- The age and condition of the home
- Roof age and type
- Electrical, plumbing and heating systems
- Fire protection and proximity to emergency services
- Swimming pools or other features
- Certain property-specific hazards
- Location-related risks
Here in New Mexico, homeowners may also have property characteristics that require special consideration when evaluating insurance coverage.
Your Premium Isn’t the Whole Story
When shopping for homeowners insurance, it can be tempting to focus entirely on the premium.
But the lowest premium isn’t always the best value.
A policy with a lower price may also have different coverage limits, deductibles, exclusions or other terms than a more comprehensive policy.
That’s why comparing policies means looking at more than just the number at the bottom of the quote.
When Was Your Last Insurance Review?
Your home and circumstances can change over time. So can construction costs, insurance company guidelines and available coverage options.
If you haven’t reviewed your homeowners insurance recently, it may be a good time to take another look.
At ABQ Insurance, we’re here to help you understand your coverage and explore your insurance options.
Whether you’re purchasing a new home, making improvements, reviewing an existing policy or simply wondering whether your current coverage still makes sense, we’re happy to help.
ABQ Insurance
Home • Auto • RV • Boat Insurance
Albuquerque: 505-217-2100
Rio Rancho: 505-433-6990
Insurance premiums and eligibility are based on a variety of factors and vary by insurance company, policy and individual circumstances. Coverage, exclusions, limits and conditions vary by policy. Contact an insurance professional to discuss your specific situation.
