Why Your Homeowners Insurance Went Up
If you compare your insurance premiums over the last few years, you'll notice it increases. It’s usually not by much, but it tends to increase every year. You should pay attention to rising costs so you can decide if you want to shop for a more affordable insurance provider. These are 10 common reasons why your premium likely increased by a little (or a lot) over the past few years:
1. Carrier Losses
About 1 in 19 homes experience a claim each year with an average payout of $11,666. Wildfires, tornadoes, hurricanes, the list of catastrophes goes on and on. In 2017 alone, there were over a million fires across the nation, costing $23 billion in damage. Your premiums go towards covering that damage.
Remember that your homeowners Insurance company is a business. That means that they have profit margins to worry about and shareholders who expect certain returns. When a catastrophe, or a chain of catastrophes happen, and your provider has to pay out more than forecasted to cover claims, they tend to raise premiums to return to profitability.
2. Concentration of Risk in Your Geography
Insurance companies want stable cash flows. They get that through diversifying their risk. So if a carrier already insures a large percentage of the homes in a certain geography, they will increase rates in that area so as not to become too concentrated and exposed to a single idiosyncratic event. If they were too slow to increase rates they might become over-concentrated in that geography. The simple response to over-concentrated risk is to begin hiking rates aggressively on existing policyholders until some portion of the policy holders leave for another carrier. Standard risk management techniques.
The inflation rate for 2018 was 1.9 percent. Most homeowners insurance policies cover the replacement cost of your home. Replacement cost tends to rise with inflation. As the cost of repairing your home rises with rising construction costs, your premium needs to rise to cover those higher costs. Keep in mind that the replacement cost is different from market value.
4. Attractive Nuisances
Do you have a treehouse in your yard? How about a trampoline? Swimming pool? Diving board or slide? Attractive nuisances are items in your home that may attract and endanger people, specifically, children. The increased risk to children means that you have a greater potential to be liable in case should something happen on your property. As a result, your insurance could increase.
5. Dangerous Home Designs
Between 2012 – 2016 there were an estimated 52,050 fires each year from heating equipment. In fact, 15% of all home fires are from heating equipment. (mainly wood burning stoves)
Spiral staircases, easily accessible roofs, old fixtures (pipes, wiring, appliances) that could potentially be a risk will also drive up insurance premiums.
6. Claims History
If you filed several insurance claims, your account gets flagged as an increased risk. A liability claim, water damage claim, or theft claim can bring on extra scrutiny. As a result, your premium could increase. You want to be a low-risk client for your insurance provider because it’ll lead to lower insurance premiums. Always take your deductible into account when thinking about filing a claim. Try to handle minor damage on your own. As a general rule of thumb, you don't want to file a claim if it is less than 2x-3x you deductible.
7. An Aging Roof
How old is your roof? Older roofs are riskier to insure because they are more likely to leak, have severe damage from a hailstorm, or have shingles blown off by a strong wind. In most cases, over 15 years is considered old for asphalt shingle roofs. For other types of roof shingles, check my average lifetime roof value. Keep up with home repairs and replacements to keep your insurance premiums low.
8. Decreased Credit Rating
As with many things in life, the better your credit, the better your discounts. Homeowners insurance is no different. A good credit score is usually considered above 670. A bad credit score is usually considered below 580. Homeowner insurance companies look at bad credit as a lower likelihood you’ll be able to pay your premium, and so charge more.
9. Fido or Thor
Everyone loves dogs but insurance companies hate risk. In 2017, dog bites cost insurers over $700 million in liability claims. If your dog bites the mailman, you will be liable for damages. Because dog bites can result in costly liability cases, some insurance companies have even blacklisted some types of dog breeds because of the increased risk.
10. Home Improvements
If you have added a deck or upgraded your home in a sizable way, you will need to notify your insurance agent or carrier. They will bump up you coverage to cover the new improvements, but that will also increase your premium.
Hope that helps in understanding those rate increases! Now the real question: are you paying too much for home insurance?
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