Insurance is one of the few products we purchase and hope never to use. So it makes sense, then, that we try to obtain the best coverage for the lowest possible premium. But if you shop for homeowners’ insurance on your own, it may seem bewildering how far apart the pricing can be when given two similar quotes.
It is important to understand how insurance companies make money before we dig into the factors used to determine your insurance premium. An insurer's profit is balanced between premiums received and how much is paid out for expenses and claims.
Each insurance company decides where they wish to deploy their capacity to insure property. For example, a company targeting the Midwest may offer lower premiums than an insurer who writes primarily in the Southeast, and vice-versa.
However, the amount of each premium to be charged all comes down to underwriting. The process of underwriting is a nuanced one but, in general, the following factors are impacting your homeowners' insurance costs:
Address – The likelihood of a natural disaster in your state, level of crime in your zip code, and availability of emergency resources in your city are all underwriting factors tied to your address.
Deductible – The higher your deductibles, the lower your premiums, as you will retain more of the risk of loss than your insurance company will.
Credit History – The cost to replace potentially delinquent customers is higher than retaining those who pay on time.
Cost to Rebuild – Rebuilding costs for your home vary over time and this is subject to inflation, labor costs, access to materials, and constantly changing building codes.
Age and Condition – Older homes often require construction materials that are no longer readily available, making them more expensive to replace or repair.
Security Measures - Discounts are available for homes with security and safety systems such as smoke detectors, fire alarms, water sensors, and/or central station monitoring. The above factors impact the cost of insuring your home from physical loss or damage. It is also worth remembering that your insurance premium may be affected by specific liability exposures such as owning a pool, a trampoline, or certain breeds of dogs.
Independent insurance agents know which types of homes and risks fit best with which insurance company. As a result, they can do the homeowners’ insurance shopping for you and ensure you receive the best coverage for the most competitive premium.