Home insurance premiums can seem like a big mystery to home owners. You hear what other people pay, you see what you pay, and none of it seems to make sense. We've partnered with TD Insurance to help you understand what goes into calculating your rates.
Understanding the variables, or as the insurance companies refers to them -- risk factors, can help make sense of things. It can even help you save money by identifying things that could lower your home insurance costs. Here are 10 common factors insurers may consider that go into determining what your home insurance premiums are, and a few tips toward saving you some money.
Where you live makes a difference to your home insurance premiums. Insurance companies look at your postal code, and postal codes nearby, to judge how likely you are to experience a loss that would lead you to file a claim. If your neighbourhood sees more claims for floods, fire, and other events, you can expect your insurance premiums to be more costly.
As your home gets older, much like your body, it's more likely to suffer some aches and breaks along the way. Older pipes can have a higher risk of bursting. Older wiring can fail more readily than new electrical, just as older roofs can let in water or be more vulnerable to wind (or snow load) damage. Owners of new homes and well-maintained homes generally pay lower premiums.
That's not a certainty, though, because old homes can be brought up to date. If your home has been upgraded and you have replaced the pipes, the roof, electrical or other parts of your house that can fail due to age and wear, be sure your insurance company is aware of the updates and in consideration of any impacts to your coverage or premiums. This can lead to reduced risk and can save you money. Don’t forget to let your insurance company know before you start any upgrade projects to ensure you have the right protection before you start, too.
How you heat your home can have more of an impact than just your fuel bill. Natural gas and electrical heating have a lower risk than other home heating systems, which can lead to lower premiums. Wood stoves, especially older models installed to older standards, can have a significantly higher risk of fire. They're a common source of house fires, including chimney fires, and that increases your risk and likely also your insurance premiums.
Oil heating is also an important consideration when it comes to your home insurance calculations because of the large oil storage tank that comes with it. Even a tiny leak from the tank can cause a large spill. That spill can cost hundreds of thousands of dollars to remediate (cleaning the oil from the ground around and under your home or even in your basement). If your tank is older, it could affect your insurance premium calculation or it could be too old for an insurance company to offer coverage, which is not a coverage you should ever consider going without.
Your home's wiring comes into the equation of calculating insurance premiums, much the same as the age of the home. Older wiring can be a problem for many reasons. A home with knob and tube wiring that has deteriorated can increase the chance of fire. Aluminum wiring was used in homes in the 1960s and 1970s to reduce costs compared with copper, but has a higher fire risk. This can lead to a higher insurance premium, or even lead to insurers asking you to replace it before providing coverage.
Modern copper wiring with a minimum of 100-amp service and breakers instead of fuses offers the lowest risk. That means they should see lower premiums. Weigh the costs, as it can be cheaper and safer in the long run to replace old wiring.
It used to be that a basement was just a place to put your furnace, maybe your washer-dryer, and for storage of items you use infrequently. Basements today are more likely to be fully- finished living spaces, including bedrooms, offices, and more. That bar you installed in your downstairs home theater room was pricey to build and will be pricey to repair if damaged by fire or water. Letting your insurance company know the extent to which your basement is finished will likely affect your premiums. But don't try to say your basement is unfinished and then make a claim for one that was fully finished. You may get lower premiums, but you may not have the coverage you need to complete repairs, and worse, your claim may be denied or your policy voided due to misrepresentation.
The distance from your home to the nearest fire station is an indicator used to determine premiums, TD Insurance says. The risk of fire is a big concern for home insurance companies, and living closer to a fire station can mean a quicker response from the fire department and less chance of a fire being a “total-loss” claim. If you're in the city, the suburbs, or other built-up areas, you're likely close enough to a station to offer a lower risk factor. In rural areas, your distance from the nearest station and potential reliance on volunteer firefighting can be an influential factor in your home insurance premiums. Especially if you are far from a water source, such as a hydrant, that lets the fire department refill their tanks and pumps.
An important part of your premiums is the expected cost to rebuild your home in case of a total loss. Larger homes, the number and size of outbuildings, and whether the basement is finished are what drive insurance premiums. Doing renovations and adding more rooms or an extra garage can be popular choices, but can also cause your premiums to be higher than if you had a smaller home that costs less to replace. If you are looking to save some money, and have no need for the extra space you have, downsizing to a smaller home can save you money in a number of ways.
Adding monitored security systems can give you a reduction in your home insurance premiums. While it doesn't impact the initial calculation, TD Insurance says that it offers Home Security Savings for homeowners who have installed extra systems like a centrally monitored water alarm (to alert you of flooding and leaks), and a centrally monitored fire or burglar alarm.
To an insurance company, past claims can be one of the best ways to predict future claims. This is not to say you shouldn’t make a claim if you need to, but make sure you take steps to reduce the chance of needing to file a claim. Increased claims frequency may not only increase your premiums, but could potentially affect your insurability.
Whether you are looking to insure a small home in the city or a larger property in the suburbs, your insurance coverage needs are going to be different from just about everyone else’s. Yes, more coverage will mean more cost, but inadequate coverage can end up being even costlier if things go wrong. Your insurer can help you figure things out and ensure that you aren’t over-, or under-insured. This is a great way to save some money, too.
Changing your deductible - the amount of money you must pay towards a repair before your insurance covers the rest - from a lower amount to a higher one, or vice versa, can change how your premiums are calculated. A lower deductible will likely lead to slightly higher premiums while a higher deductible can provide savings on your initial quote or renewal. Only you can determine what the best balance is for you and your financial security.
TD Insurance offers an Enhanced Home coverage option, that includes extras like eco-efficient rebuilding, which provides allowances to rebuild or repair your home in the interest of making it more eco-friendly than it was before. You can also get additional coverage for parents in care homes and increased limits for high-value items, like expensive jewelry. It is important to choose the coverage options that are right for your insurance needs, as the scope of that coverage will help determine your premiums.
Learn more from TD Insurance about how home insurance premiums are calculated, and get a quote online in minutes.