Why Is My Home Insurance Premium Increasing?

What is a premium?

A premium is the money that you, the consumer, pay for insurance coverage.

What determines premiums?

Insurance companies set premiums based on the expected cost of future claims. Personal risk factors, like those listed below, are considered when setting premiums.

Keep in mind that the determining factors may be different based on state laws. State laws require that rates cannot be excessive, inadequate, or unfairly discriminatory.

Home Insurance Factors

• Where you live.
• Your claims history.
• The cost to replace your home and contents, which is not the same as its market value.
• Your insurance score.
• Your deductible. A deductible is the amount of money you pay before your insurance company starts paying its share of claim costs. Choosing a higher deductible will reduce the price you pay for homeowners insurance.
• Your home’s age. New homes may qualify for discounts, while older homes may not qualify for preferred programs. Insurers may require older homes to have updated heating, plumbing, wiring, and roofing.
• The age and maintenance of your home’s construction materials and roof.
• Fire protection. Your home’s distance from a fire hydrant and the quality of your local fire department determine your fire protection class.

Additional Factors

• Extreme weather events. Natural disasters are happening more frequently, and they are becoming more severe — even occurring in areas that haven’t been historically impacted. This can result in more damage to homes and more claims being filed.
• Construction and repairs, including the costs of labor and materials. These costs tend to be higher in more populated areas of the U.S. and higher when there is limited supply.
• Economic factors like inflation and interest rates influence real estate values and the price of goods.
• Increasing cost of litigation.
• Reinsurance costs. Insurance companies buy their own form of insurance called reinsurance. Reinsurance costs have risen significantly and are also impacted by the above factors.

How can I lower my premium?

• Shop around. Before you buy a policy, it’s a good idea to get quotes from several companies. Make sure you understand what coverages are included and that you’re comparing like policies.
• Ask your insurance agent or company if your deductible is a fixed dollar amount or if it is a percentage of your home’s insured value. Also, find out if your coverage is for actual cash value (ACV) or replacement cost value (RCV). Policies that pay claims based on RCV give you more protection than policies that pay based on ACV, but the premiums will likely be higher.
• Increase your deductible, but make sure you have the money to pay out of pocket if you file a claim.
• Bundle your auto policy with a homeowners or rental insurance policy.
• Ask your agent about discounts for installing smoke detectors, burglar alarms, monitored security systems, deadbolt locks, and sprinkler systems.