YOU ASK:

How are home insurance premiums determined?

WE ANSWER:

There are a number of factors which are used by underwriters to determine home insurance premiums. These factors play an equally important role in assessing the risk each insurance applicant is exposed to, hence the amount which each applicant is to pay for home insurance.

Factors Used to Determine Home Insurance Premiums

Location.
Some areas are more prone to disasters or theft than others, therefore premiums there are higher than in moderate or low-risk zones. Each company's underwriters use the loss history in each area to determine the exact home insurance cost. Florida and Texas have some of the highest home insurance premiums.
House structure and construction.
Houses made of more solid materials are cheaper to insure. If you have a wooden house, you are likely to pay more for home insurance than a stone house owner would. Any loss-prevention features you install will help lower your premium.
Policy Type.
Home insurance policies that are broader in coverage are more expensive than limited-peril policies. For example, the most common policy HO-3 (broad form) is more expensive than HO-1 (basic form), but is cheaper than HO-5 (special form).
Cost of labor and materials.
Construction costs are particularly important since, to some extent, they determine how much it would cost for your house to be rebuilt.
Class of Fire Protection.
The fire-protection class is determined by the proximity of a property to a public Fire Department. City houses are thus less expensive to insurance than rural dwellings.
Deductible.
This is the amount of money you will have to take out of your pocket when your property is damaged. The higher the deductible, the lower the premium. The minimum deductible you are expected to have on home insurance is $250, although you are strongly encouraged to set a higher amount.
Your CLUE report.
Insurers have access to a claims database called Comprehensive Loss Underwriting Exchange (CLUE) which allocates a special place for every home owner. Insurers will check your CLUE report to determine whether you qualify for home insurance. Sometimes even a minor claim in the past three years can make an insurer turn down an application.
Age of Home.
Your Credit Score.
People with bad credit record tend to file more insurance claims, therefore they usually pay higher premiums.

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