Your homeowner’s carrier uses a lot of different items to calculate your insurance premium. Although many people just blame their insurance company for rising rates, it’s important to note there are things that you can control that effect your insurance premium. We’ve put a list of 13 things that go into your insurance carrier’s premium calculation. Although this is in no way a complete list, it does detail some of the most important contributing premium factors.
Your home’s construction has a major bearing on your insurance premium. As the fairy tale of the 3 little pigs taught us, frame homes are easier to blow down than those made of concrete block. In Florida, we pay a separate premium and generally have higher deductibles for wind coverage due to the threat of hurricanes. Frame homes are also more susceptible to large losses as a result of fire damage. So if you’re in the market for a new home and want to save some money on your homeowners premium, we recommend purchasing a concrete block home.
2. Year Built or Age of Your Home
Another contributing factor to your insurance premium is the year it was built. Typically, the rule is the older the home is, the more expensive it is going to be to insure. New homes must meet the new Florida Building Code requirements. Therefore homes in coastal areas must have hurricane impact rated windows and doors. They must also be made of reinforced concrete construction. New flood requirements may require that homes be elevated so that the lowest living floor is out of the “base flood.” Older homes were built prior to the newer codes, so when the winds blow, they have a greater chance of being damaged.
3. Distance to the Coast
As a rule, the closer your home is to the coast, the more it will cost to insure. Again, the main reason for this is hurricanes. History shows that a hurricane fueled by the warm Gulf of Mexico waters causes the most wind and flood damage to homes that are near the coast. This means that it typically costs less to insure homes in Tampa than Treasure Island.
4. Home Size, Quality, and the Cost to Rebuild
Typically, the more square footage you have the more it would cost to rebuild. The same thing goes for quality. The nicer a home is, the more it would cost to rebuild. The building limit is the number one driver in your homeowner’s premium so if you have a mansion it’s going to cost more than a small home with less than 1,000 square feet.
5. Distance to a Police & Fire Station
Most of the homes in Tampa Bay are within 5 miles of a police and fire station, so this is not a huge contributing factor to our insurance premiums. However, if you had a home in the middle of the state, in the panhandle, or on a barrier island it would be hard to reach if there was ever a burglary or fire. For this reason, these homes have higher theft and fire rates.
6. Roof Age & Type
If you have an older roof, it may be difficult to place your insurance with an insurance company. Each one of our insurance carriers has an age limit on the different types of roofs. For the most part, flat modified bitumen or rolled roofs are given 10 years, architectural shingle roofs are given 15-20 years, tile roofs are given 30-40 years, and metal roofs are given 30-40 years. If your roof is older than that, the carrier options you have will be limited, which usually results in higher premiums. Also, most carriers are not fans of flat roofs in Florida as they let water pool, which can lead to water damage losses. The best roof shape is hip, where all sides slope downwards to the walls. These roofs are better than gable roofs at allowing wind to pass over, and therefore receive higher wind mitigation credits.
7. No Wind Mitigation Credits
After the devastating 2004 Florida hurricane season, the state of Florida Legislature introduced wind mitigation as a way for homeowners to reduce their increasing home insurance costs. The thought behind the program was if you as a homeowner do things that make your home more resilient to wind loss, then your homeowners carrier should reduce your wind insurance premium. For a small cost (typically less than $100), you can have a licensed contractor or home inspector inspect your home to see if your home has credits.
Credits are given for the following:
- Age of Roof – If put on after March 2002 you get a credit
- Shape of Roof – If you have a hip shaped roof you get a credit
- Roof Deck Attachment – If you have longer nails that are closer in the roof deck you get a credit
- Secondary Water Resistance Barrier – If you have a barrier underneath your roof coverage you get a credit
- Opening Protection – If all of your windows and doors are hurricane impact rated you get a credit
So the more credits you get, the cheaper your insurance will be. Homes without any wind mitigation credits are going to have premiums significantly higher than those that do.
8. Insurance Score
Insurance scoring has been used for quite a while for Auto insurance, but it is recently new to Homeowners insurance. Most insurers we work with now calculate an insurance score which can adjust your homeowners premium. The rate is calculated using several factors including credit history, claims history, payment history and more. Insurers believe that the better your score, the less likely you will be to file a claim.
9. Low Deductibles
After Hurricane Andrew, most every insurance carrier in Florida implemented percentage hurricane or wind and hail deductibles. These deductibles require home owners to take on more of the financial responsibility in a hurricane loss as the home value increases. For example, a homeowner with a $100k home and a 2% deductible will have a $2,000 deductible. While a homeowner with a $1 million home and a 2% hurricane deductible will have a $20k deductible. Homeowners carriers typically give large credits for increasing your hurricane deductible.
In the past most people had relatively low deductibles. These deductibles were usually either $500 or $1,000. The most common deductible we now quote is $2,500 since there is a pretty large credit given from $2,500 to $1,000. Carriers are also now offering $5k and $10k deductible options.
Remember if you choose a large deductible and you have a claim, you are responsible for that portion of the claim amount. The decision on your deductible should not only be based on premium, but also your financial situation and your tolerance for risk.
10. Prior Claims
Prior claims are a big driver in your insurance premium. An article on CNN Money stated that on average, filing a single claim will raise your premium by 9%. However, It’s important to note that this percentage varies amongst carriers. Most carriers are typically forgiving for 1 claim. However, after 2 claims (especially water damage claims), you may be non-renewed and in search for a new insurance company. This does tend to lead to increases in insurance premium as there are less markets that will write policies for individuals with 2 or more prior claims. Also, insurance claims follow you. So just because you’re buying a new house does not mean you lose your prior reported losses.
11. Crime or Thefts in the Area
A standard Homeowners HO3 policy covers theft loss. Although there are limitation for things such as jewelry, as we mentioned in our blog, “11 Special Homeowners Limitations You Need to Know,” your other contents, like electronics and clothing, are only limited by the policy limit in your policy. If your home is located in an area where there have been a number of recent burglaries and break ins, your theft rate will be higher. Companies like CoreLogic measure statistics on crime, and provide them to insurance companies so they can file rates.
12. Electrical & Plumbing hazards
As mentioned in our blog, “What Makes an Older Home in Florida Difficult to Insure?” there are certain older home electrical and plumbing hazards which may scare away insurance companies. And when a lot of insurance companies are scared away, you’re most likely going to pay more for insurance coverage. For example, aluminum wiring was used frequently in the 1960s, and is in many older homes around St. Petersburg. Although there are now remediation methods, such as AlumiConn connectors that reduce the risk of fire loss, only a handful of Florida insurance companies will cover these remediated homes. The same thing goes for older plumbing techniques, such as galvanized and polybutylene plumbing. With these older plumbing techniques, our options are very limited. The carriers that will cover these plumbing types require a full plumbing inspection and typically sub-limit their water damage payout to $10,000.
13. Have Not Shopped
Unfortunately, not shopping your insurance premium every so often can lead insurance premium increases. Carriers are always adjusting their rates, especially in Florida. Due to the wind concerns here, when a carrier over-fills a territory with policies, the only way for them to reduce policy counts is by either increasing rates or non-renewing policies.
This is why it is crucial to work with an independent agency, like Insurance Resources. We have access to many insurance markets and have the ability of to review and shop your coverage. We recommend having a discussion with your agent before each renewal to see if it makes sense to shop your coverage. Part of an insurance score that we talked about earlier looks into the length of time you’ve been with your previous insurance company. If you bounce around every year trying to find the cheapest premium, insurance companies will most likely increase your rates.
So as you can see it’s not just your insurance company that’s the reason your premium is so high. There are a lot of factors that you can and cannot control which affect your overall insurance premium. As mentioned, we do recommend shopping your coverage every so often. However, when you do so we always recommend speaking with your insurance agent. You can’t just look at the bottom dollar. Our agents are well trained at comparing coverages, and are always looking out for your best interest.
If you have any questions about your insurance premium, or what goes into an insurance premium calculation, please reach out to our office at 727-345-0242 or contact the author of this blog, Brian Ford at firstname.lastname@example.org.