How is Your Home Insurance Premium Calculated?

Homeowners Insurance protects the house, family and other personal possessions.  Losses occurring due to natural disasters, accidental damages, civilian movements, social evils, liabilities etc. can be covered under this policy.  Different variables and factors determine the your premium and insurance cost.  When it comes to choosing Homeowners insurance, it is advisable to remember that higher deductibles attract lower premium but, in case of a claim Insurer may have to pay more, where as lower deductibles attract higher premium but, Insurer needs to pay less in case of a claim.  In the aftermath of tornadoes and thunderstorms in U.S.A, homeowner’s insurance premiums are expected to go high.  First and foremost point to be remembered in the homeowner’s policies is that premium rates are tied up with possible reconstruction or rebuilding the house/structure rather than with the actual value of the structure.


Homeowners Insurance Rates

Average premium of homeowners insurance in 2008 was $791.00 in U.S.  During early months of 2010 the average was $679.14, which came down to $637.26 by July 2010.  It has been assessed that premium on homeowner’s insurance varies from state to state in U.S.A.  In Utah average rate of home insurance premium was up by 16.6 percent, where as in the state of Nebraska it was down by 17.6 percent.  Premium calculation of homeowner’s insurance, in general depends on the following variable factors;

1. Value of Insured/property: The basic factor is the value of the property that determines the premium.  If the owner decides to be compensated corresponding to the value of the property, the premium is calculated accordingly.  On the contrary, if the owner insures the property for a lesser amount that the actual value of the property, the premium is calculated according to the insured value.  In the latter case, the owner gets only the insured value in the event of any disaster, but he/she cannot replace the loss fully with the insured amount, as the value of the property loss is higher than the insured value.

2. Location of the property:  Location of the property is another important factor contributing to the quantum of the premium.  If the proposed to be insured is located in a disaster prone area, where there is every possibility of occurrence of earthquakes, floods and other natural calamities, then the premium is expected to be higher than other safe areas.  With regard to thievery coverage, theft rate in the particular area of location of the property is taken into account for calculation of the premium.

3. Credit History:  If the owner has a poor or average credit history and/or also the locality where the property is situated also falls in the poor credit rating quotient, then the premium would be higher than the normal cases.
4. Living homes/empty homes:  Premium of an empty house is higher than the living ones.  Because, in case of empty houses risk factor for unchecked disasters and malicious evils is more, where as occupied and living houses are considerably protected by dwellers and hence, premium becomes cheaper.

5. Value of possessions:  Premium calculation also depends on the value or cost of personal possessions in the house.
6. Age factor:  The age of the structure also determines the rate of premium.  As stated earlier Insurance agencies calculate the premium on the value of reconstruction of the structure rather than tying up premium with current value of the structure.  Therefore, the older the age of the structure the higher the premium.  When the owner is prepared for lower homeowners insurance coverage, then the premium is less, but, owners risk of loss of property  due to a catastrophic situation becomes detrimental to his interests as he/she cannot have a new one constructed with the insured amount as the amount required for reconstruction as per existing rates would be high.  With regard to considerably new houses or structures, premium is less and owners risk is insured and in the event of any loss or damage, he/she can happily reconstruct or renovate the structure or home with the insured amount.
7.  Other factors:  Insurance agencies also take into account the material with which the house is built.  If the structure is built with risk prone material such as wood and other easily damageable items, then additional charges are added taking the premium to higher side.


2 Responses

Post your comments