If you want to save money on your home insurance policy, it helps to understand the key factors insurers use to measure your risks and calculate your rates.
The type of home you live in as well as its age, its location, and your past insurance claims will help underwriters determine what to charge for your policy. Any factor that increases your risk of a filing a claim may raise your premium.
According to Pete Moraga, spokesman for the Insurance Information Network of California, the weight that insurers give to different factors, such as your claims history and the age of your home, will vary from insurer to insurer. This is why it’s always important to shop around for a home insurance policy that’s best for you.
1. A history of past claims.
If you've filed previous home insurance claims, you could end up paying more for your policy. That's because insurers have determined that statistically, people who have made a claim in the past are likely to do so again, says James Whittle, assistant general counsel and chief claims counsel for the American Insurance Association trade group.
"If you've made claims, then your premium needs to reflect that," Whittle says.
Jim Armitage, a longtime insurance agent in Arcadia, Calif., says a history of frequent insurance claims can raise your premiums by between 20 percent and 40 percent, compared to someone who has few or none on their record.
2. Expensive homes are more costly to insure.
If you live in a very expensive home, you can expect your homeowners premiums to reflect that with higher rates, Whittle says. That's because modestly priced homes typically are less costly to repair or replace than high-end dwellings.
"The more you pay for the home, the more valuable the structure, the more it will cost to insure, because you have more to replace," says Kevin Foley, a New Jersey insurance agent.
For example, Foley says if a 5,000-square-foot home were located in the same neighborhood as a 2,500-square-foot home and both were made from similar materials, the larger home typically would cost twice as much to insure.
3. Living more than five miles from a fire station
One of the things insurance underwriters want to know is how close your home is to a fire station and how prepared local firefighters are to deal with emergencies.
Whittle says homes that are close to fire stations are less likely to burn down, so there’s less risk that insurers will have to pay to repair or replace them. Even if you live near a fire station, your insurer will want to know if it has adequate staffing and equipment, says Ron Moore, a senior product manager at MetLife Auto & Home.
"The ISO (Insurance Services Office) will go out and rate the fire district, the response time, the equipment they have, and whether they are a volunteer department or have full-time people on staff," he says.
If you live many miles away from a fire station, "you probably are looking at an added cost of 40 percent or more," Armitage says.
Rancho Santa Fe, Calif. Fire Chief Tony Michel says insurance companies sometimes give cost breaks to homeowner policyholders whose homes are located within five miles of fire stations.
4. An older home may cost you more to insure.
The age of homes is carefully considered when premiums are set, Moore says.
"Newer homes generally have a lower premium," he adds. "They’re easier to repair (and) less subject to damage."
A home that is between one and five years old typically is considered to be newer, Foley says.
Older homes can be more costly to repair because the materials used to build them often are difficult to find. For example, homes built during the first half of the 20th century often have interior walls made from plaster. Modern homes use prefabricated drywall sheets to create interior walls.
The process of recreating plaster walls is more labor intensive than using drywall. Finding a contractor who do this work may be difficult and cost you more money.
New homes typically are built to higher construction standards than older homes, Moore says. The electrical wiring and plumbing are much less likely to fail. Major appliances, such as furnaces and air-conditioning units, are less likely to break.
There are things you can do to reduce your insurance costs, if you have an older home, says Foley.
"You can update your furnace, air conditioning, roof and plumbing," Foley says. "The reason why older homes are charged more is because those things are getting older and weaker and eventually something is going to break."
5. A poor credit history can label you as a bad insurance risk
Most states allow insurance carriers to consider your credit history when setting homeowners insurance rates. According to the nonprofit Insurance Information Institute, only California, Massachusetts and Maryland ban the use of insurance credit scoring for rate-setting.
"A credit score is a reflection of how you pay your bills," Foley says. That's because insurance companies say they have found a strong statistical connection between how you pay your bills and how likely you are to make a claim, he adds.
Armitage says the difference between what’s charged to someone with a good credit record compared to a similar policyholder who has fallen behind on his bills can be significant.
"It could be a dramatic difference in cost, as much as 50 percent," he says.
United Policyholders, a consumer advocacy group, says in some cases homeowners with bad credit histories can pay as much as four times as much as policyholders with good credit records.