Homeowners insurance is something that most people must buy. However, it’s understandable why most property owners have to factor the cost of coverage into their own budget. Therefore, when you see your premiums rise, it might give you cause for concern.
You might wonder why homeowners insurance premium increase, and the answer is that it all comes down to risk. The higher your likelihood of making a claim on your policy, the higher your premium might be. Therefore, numerous factors relating to your property, lifestyle and coverage itself might drive your premiums up. What are some of these factors? Why do they drive your policy costs up?
1. You Make an Addition to Your Home
Homes cost money to build and repair. Therefore, most homeowners policies pays for dwelling claims based on their replacement cost value. This is the money necessary to pay for your home’s repairs.
So, when your dwelling’s value increases, you’ll likely have to increase your dwelling coverage. Adding onto your home or making extensive renovations could all increase this value. And, as value increases, so does risk. Insurers will likely have to increase your premium to make up for this advanced risk.
The home’s value might also increase due to changes in construction values in your area. Though the actual value of your house might have stayed the same, the value will likely increase when you do have to make a claim for household repairs. Therefore, the additional construction value will likely increase the insurer’s burden. As a result, insurers might raise your rates.
2. You Make a lot of Claims on Your Policy
When you make a claim on your insurance policy, your insurer might have to pay you a settlement. Therefore, you not only cost them money but also demonstrate that you have higher insurable risks. As a result, your insurer might have to raise your rates. Often, they will do so when you renew your policy. You might also lose your eligibility for certain discounts due to the presence of claims on the plan.
3. You Increase Your Policy Limits
Supply and demand affect prices. Therefore, if you buy higher homeowners insurance limits, then your policy rate will increase. After all, the more you buy, the more your insurer might have to pay out following a claim.
However, as you increase your limits, corresponding rate increases are usually much lower than any cost you would pay for an uninsured claim. Therefore, the added cost is often much more affordable than going without coverage. Additionally, policyholders can usually qualify for discounts to offset some of the cost increases that higher policy limits might bring.
4. You Lower Your Deductibles
A deductible is an insured party’s personal responsibility to pay towards the cost of household damage or possessions losses. For example, if you have $5,000 in structural damage and a $2,000 home deductible, then you will pay the first $2,000 of your own repair costs. Your policy will then reimburse you for the remaining $3,000 left on the claim.
By lowering your deductible, you shift the cost burden away from yourself. For example, reducing your deductible from $2,000 to $1,000 will mean you only have to pay the first $1,000 of a future claim. However, this is a $1,000 cost that the insurer will have to assume themselves. To absorb this additional cost risk, they might have to charge you more.
Don’t forget, however, that by increasing your deductibles you agree to take on more of a cost burden yourself. Therefore, you should always choose one you can certainly afford to pay in the event of a claim.
5. Your Risk Levels Increase
All insurers use risk ratings to determine clients’ premiums. Based on the score they assign you, your premium might cost more or less. Factors that might impact your risk rating might not only include your chosen coverage limits, but also many demographic factors like your credit score, location, your marital status and the presence of pets in your home. Insurers will usually re-evaluate this rating each year. Therefore, as the time rolls around to renew your coverage, your new rating will influence your premiums.
6. Local Insurance Risks Increased
Not only can your insurance premiums increase if you make a lot of policy claims, but they can also increase based on the claims made by your neighbors. Insurers use location as a risk rating indicator. Therefore, if more claims arise in your neighborhood, then this could show that you have a higher risk of making a claim on your own policy.
As a result, insurers frequently increase premiums for all clients in a certain area depending on the location’s overall risks. However, these increases are often quite manageable for clients who are not high-risk policyholders in and of themselves.
Plus, don’t forget that your policy can still offer discounts and other savings incentives even if your rates do increase. Therefore, your agent is happy to help you keep your rates within an affordable range by helping you research how to optimize your policy options. You can rely on us to help you get the appropriate solution even as your premiums go up.
Also Read: Home Inspections and Improvements to Make this Year
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