How Is Home Insurance Determined?
Many factors have to be considered when an insurance company assesses the cost of your homeowner policy. By determining the amount of potential risk associated with you and your home, the company can figure out a fair price to charge you. Knowing some of the key risk factors when you begin shopping for home insurance can help you understand why you are quoted a certain price.
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Credit Score
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A low credit score basically means you are a high-risk consumer. Low credit scores are usually the result of failure to pay your debts, a history of late payments and/or a high debt-to-credit ratio. If a home insurance company sees you have a low credit score, it will charge you more than it would charge someone with a high credit score because by insuring you, it is taking a bigger chance on you.
Location
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You probably already know you can be charged more if your home is in a risky area like a flood zone. But you also can be charged more if your home is too far from a fire station. Being out in the country or on a farm may be your ideal, but living far away increases your risk of injury and therefore, your home insurance increases. Living in hurricane-, tornado- or earthquake-prone areas will cause your insurance to go up.
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Size
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The bigger your house, the more insurance you will pay on it. Since home insurance is designed to cover either the cash value or the replacement value of your home in the event it were to be totally destroyed, more house means you have to get insurance to cover these costs.
Construction
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The materials used to build your home will affect the insurance you pay on it. Structures are considered more stable when they are built out of brick, block or stone, whereas wood or stucco are more expensive because they are not as strong.
Pets
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If you own pets, especially dogs, be prepared to see that reflected on your premium. Insurance premiums can vary depending on the breed and temperament of your dog. To minimize the risk associated with being a pet owner, keep your pet's vaccinations current and invest in any necessary training.
Other Risks
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Remember, home insurance cost is determined by evaluating total risk. The insurance company will charge you more if you and/or your house fits the criteria for being more risky. Some additional factors include whether you have a pool, a gym or a play set in the back yard, the construction of your roof, your tobacco habits and anything else in your life that qualifies as adding risk to your home or yourself.
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References
- Photo Credit holding keys image by Digimist523 from Fotolia.com
