Like most insurance policies — your home insurance premium is based on how much of a risk you are to your home — but that’s not all of it. From the size of your home to its location and construction style, even whether or not you have a pet, all of this is taken into consideration when creating a policy. Let’s explore the top factors that affect your homeowners’ insurance premiums and 5 things you could do that can completely void your policy, to make sure you get the most out of your coverage.
What Does Homeowners’ Insurance Cover?
Before we dive into the factors that affect your homeowners’ insurance premiums, let’s briefly look at the ins and outs of a typical homeowners’ insurance policy.
A standard homeowners’ insurance policy covers your home and its contents in the event of damage. A typical policy will include coverage for damage resulting from fire, smoke, theft (including vandalism), and damage caused by lightning, wind, or hail. You could also receive coverage for external forces like a falling tree.
What Is Not Included in a Standard Homeowners’ Policy?
Typically, a standard homeowners’ insurance policy does not include coverage for valuables like jewelry, artwork, and other such collectibles. It also doesn’t include identity theft protection or damage caused by an earthquake or flood (flood insurance is typically offered as an add-on).
Now that we know what a homeowners’ insurance policy is and isn’t, let’s explore the top factors that affect homeowners’ insurance premiums.
The cost it takes to rebuild your home is known as the replacement cost. The replacement cost takes into consideration elements like the type and cost of construction materials, as well as factors like:
- Square footage
- Architectural style
- Number of rooms
- Local rebuild costs in your area
While they may sound similar, your home’s replacement cost is not the same as your home’s market value, which refers to how much your home could reasonably sell for.
Your credit score and length of credit are all used to determine how much of a risk you are to insure. The better your credit, the less of an insurance risk you are — at least, in theory.
The rationale behind this is that homeowners with low credit scores are considered more likely to file insurance claims than homeowners with a high credit score. The less likely you are to file a claim, the lower your insurance rates will be.
You shouldn’t be afraid of filing a claim, but too many claims within a relatively short period of time are one of the common factors that affect home insurance premiums. Claims within a three- to five-year span shouldn’t have much of an effect on your premiums.
A history of frequent claims can be a red flag. Theft, water damage, and dog bite claims can have the largest impact on your policy rates.
Historically, married couples file fewer claims than their unmarried counterparts. Since married couples statistically file fewer claims — on average — than non-married persons, these couples are viewed as being more stable and “settled” than singles.
Age of Home
Newer homes tend to have lower home insurance rates since homeowners are more likely to file insurance claims in older houses with outdated appliances and home systems.
Your policy deductible amount directly impacts your home insurance premiums. Your deductible is the out-of-pocket expense you’re responsible for paying when you file a claim. Your insurance provider covers the rest.
The higher your policy deductible, the lower your insurance premiums will be. Typically, you can opt for either $500, $1,000, and $2,000 deductibles.
Your location is one of the biggest factors that affect homeowners’ insurance premiums. Areas prone to natural disasters (especially hurricanes, tornadoes, and wildfires) will see higher policy rates. Insurance rates are also usually higher in cities and suburban areas than they are in rural areas.
Insurers also consider your ZIP code and how close you are to fire stations or fire hydrants. Additionally, property crime rates and frequent break-ins can also result in higher rates.
Taking care of your pets and managing a clean house can be difficult. It’s possible that adding a pet — especially a dog — will cause your homeowners’ insurance premium to go up a bit. This is mainly dependent on the breed of your dog, as some breeds are associated with higher premiums than others.
How to Save On Homeowners Insurance
While some of the factors that affect your homeowners’ insurance premiums are outside of your control, it’s important to focus on those areas you can impact. These include factors like:
- Maintaining a good credit score. Having a good credit score will help you in a lot of areas of your life. If you already have a good credit score, try improving it by paying off the entire balance every month. If you need to rebuild your credit, pay at least the minimum payment each month until you can afford more.
- Protecting your home. Doing your part to protect your home from fire, theft, and natural disasters can reduce the cost of your homeowners’ insurance. Thinking of adding storm shutters or new house siding? Opt for fire-resistant materials when possible. You could also reduce your premium by adding deadbolt locks and security systems to prevent theft and sprinkler systems and fire alarms to protect against fires.
- Reducing the number of risky items. Do you have an old swimming pool that hasn’t been used in years? Maybe a trampoline your kids have outgrown? Since liability insurance is one of the key coverages of your home insurance policy, removing structures that increase the risk of a claim can reduce your insurance costs.
5 Reasons Homeowners Insurance Policy Could Get Voided
One of the most important rules for having a homeowners’ policy is to be a responsible homeowner. You have the freedom to do what you want with your home and property. However, it’s still important to take into account how changes to your home could affect its long-term value, and how those changes could affect your homeowners’ insurance policy.
At Robertson, we believe in getting to know you and your unique situation so we can craft coverage that fits your lifestyle. While educational, the list below should not scare you from enjoying your home, but instead, serve as a sort of “not-to-do list”. With that in mind, let’s explore five things that could void your homeowners’ insurance.
#1 Poor Home Maintenance
Neglecting proper home maintenance can lead to undervaluing your property and even having claims denied. As a homeowner, you’re expected to carry out essential repairs like plumbing issues or problems with the foundation of your home. If you don’t, you could end up with a voided policy.
#2 Lack of Receipts for Claimed Items
In the event of property damage, it’s important to have receipts for items you’re looking to claim. To prevent any issues from arising, we recommend saving receipts for medium to large purchases that you’re looking to claim sometime in the future.
#3 Illegitimate Flood or Fire
Circumstances like faulty wiring or plumbing that lead to flooding or fires are covered under most homeowners’ insurance plans. However, if the experts called in to inspect the situation can’t determine the cause of the fire or flood — or even believe the situation to be the result of negligence — then your policy could be at risk.
#4 High Number of Claims
A high volume of frequent claims is one of the factors that affect homeowners insurance premiums, but it’s also something that could result in a voided policy. An unusually high number of claims — even though none of them may appear fraudulent — could signal negligence on the part of the homeowner.
#5 Changes in Property
Undocumented changes to your property could result in a voided homeowners’ insurance policy. Undertaking a large renovation or add-on — like adding extra rooms to your home and then attempting to file a claim for damage to those rooms— is not something you should do without contacting your insurance provider.
An insurance company does have the right to void your policy on the basis of not being informed of major changes to your home.
How Does Working from Home Affect Your Homeowners’ Insurance Policy?
Remote work opportunities are projected to continue to increase in the coming years, and that means more home-based businesses popping up, too. If you have or are thinking of starting your own business from home, it’s important to note that homeowners insurance is not designed to cover a home-based business.
Do Home-Based Businesses Need Insurance?
The quick answer is yes — but what you need can vary. If you’re looking for insurance for your home-based business, it’s best to consider a business insurance policy in addition to your homeowners’ insurance. You may also consider general business liability insurance to cover bodily injury, and workers’ compensation insurance if your home-based business has employees.From homeowners’ insurance to business liability and risk management, we’re here to have a conversation with you and help you find what you need.