Did you know that there’s a science behind how insurance companies determine risk levels for their products? It’s true! It’s called actuarial science. Math and statistics are used to form accurate data with which a company can then determine a premium for your location. Your home insurance premium depends on a variety of risk-related factors; the same goes for all insurance premiums. Insurers analyze these risks to figure out the likelihood of a claim being made, and the potential cost of the claim.
Here are some factors that influence property insurance rates.
Replacement/rebuilding cost
One of the biggest factors that affects your premium is the size of your home, what materials were used to build it, and your contents. The higher the rebuilding cost the higher the premium. An insurance company will also take into consideration the quality of the materials used to build the original home (such as type of countertops, flooring, etc). It’s important to keep in mind that real estate market value (value of land and location) have no bearing on the cost to rebuild your home.
The age and condition of your roof
If your roof is between 15-20 years old, the more likely it is that it will leak or be easily damaged in a storm. In the event of a claim, your insurance company may only choose to pay for the depreciated value of the roof rather than the full replacement value. It is very common to have to provide photos of your roof to the insurance company before they agree to insure your home.
Your location
Insurers keep a database full of past claims per city, town, neighbourhood, etc. Their records contain information such as the type, cost of claims by neighbourhood and how often they’re likely to happen. For example, if you live in a high-end neighbourhood, statistics might show that the most common type of claim filed is related to a break-in, which will reflect in your home insurance premium. However, having a security system installed in your home may make you eligible for a discount, and give you peace of mind that your home and family are safe.
How close your home is to water
This one can have double meanings. First, it can refer to how far you are from a fire hydrant or fire station. If you live in an urban setting, this usually isn’t a concern, but if you’re located in a more rural area, this may increase your premium. The faster the fire can be put out, the lower the cost of rebuilding your home. Also, water is important when considering the chances of flooding in your neighbourhood. This can range from a body of water flooding due to a lot of rain, or something more common like when the ground thaws after winter and water sneaks into your home through cracked foundation or causes a sewer back-up. For these reasons, water coverage can sometimes come at a high cost, or can also be completely unavailable for your area.
Swimming pools
Some things that are considered luxuries to homeowners, can be considered hazards to insurance companies. Such is the case with pools, which increase your liability for injury, and potentially even drowning. On top of that, owning a pool will increase the value of your property, which, as we’ve learned, will play a factor into your replacement cost. For an additional premium, it is a good idea to consider increasing your liability coverage if you have a pool.
Electricity
Insurers want to know that the electrical work has been updated in the homes they insure. For example, much older homes can sometimes be wired with knob-and-tube or aluminum wiring, which are more likely to catch fire. They will also consider whether or not you are still using fuses or have upgraded to breakers, and how many amps your electrical panel holds. Anything under 100 amps is likely to overload, which could result in a fire. The good news is that if you do have any of the above in your home, an insurance company may do one of the following: they may require that you have your wiring and panel inspected by a certified electrician to ensure that they’re up to code and safe, they may request a guarantee that the house doesn’t have any of the potentially problematic materials, and they may also provide you time to upgrade. This, though, is all at the discretion of your insurer.
Heating
Your insurance rates can increase depending on the heat source used in your home. Central forced air or gas are more affordable ways to heat your home – this goes for your utility bills as well as your insurance premium – because it’s safer in terms of fire risk and other heating problems. Alternatively, wood stoves are on the pricier side of insurance rates as they are more commonly known to start fires and can also be the source of carbon monoxide poisoning if they aren’t maintained properly. Make sure to do your research before committing to one type of heat source over another.
Plumbing
Older homes constructed with galvanized and lead plumbing, which can crack and leak over time. They can also be the reason an insurance company denies providing you coverage, as your home might carry a higher risk of water damage due to pipes bursting. Today, copper or plastic plumbing is the way to go; it’s more durable and betters the quality of your water. If your home has older plumbing, your insurance company might request that you update it before they agree to insure your home.
Your claims history
Your past claims history for property insurance will be a large deciding factor on whether or not an insurance company will accept your home as a risk, or cancel your policy altogether. The more claims you’ve filed, the more likely this is a trend that may continue, which is not what insurers want to see.
Usage
If you run a home-based business, your insurance company will want this to be disclosed to them, so they can determine whether or not you can maintain your existing policy, or if you will have to add an endorsement to your policy that provides you with the proper liability coverage. Depending on the size or type of business, your standard home insurance policy may not be the right one for you. You may have to purchase a commercial policy that will provide you with adequate coverage.
Home insurance doesn’t have to cost an arm and a leg, but if you do your research before buying a home or inquiring about a policy, it may go a long way. Also, there are some discounts that may be available to you, such as claims-free, age of the home as well as the homeowner, and most companies will offer you a discount if you bundle your home and auto together. If you have any questions about your home insurance policy, please feel free to reach out to InsuranceHero.ca and we will be more than happy to provide additional details. We’re always here to answer any questions that you may have.
