This article is designed to provide you with information on factors that could affect your home insurance premium, and tips on how you can potentially lower your home insurance cost. But before that… let’s just make sure we all know what a home insurance premium is and how it is calculated.
What is a home insurance premium?
Your home insurance premium is the amount you pay to an insurance company to insure your home. Your home insurance premium is generally calculated for a one year term, and can be paid monthly, at determined periods, or in a one-time payment.
How are home insurance premiums calculated?
Home insurance premiums are calculated based on several factors, each of which rates your risk of having an insured loss. Some of the factors that determine a home insurance premium include: where your home is located, its replacement cost, the age of plumbing and electrical services in the house, condition of the roof, distance from a fire hall or fire hydrant, your claims history and your insurance history.
So... What are some key factors that can affect home insurance premiums?
The cost of your home insurance is dependent on many different things. Below we have outlined 15 key factors that could affect your home insurance premium.
1. Continuous property insurance
The amount of time a person has continuous home insurance without any claims can lower their home insurance premium. Having continuous home insurance (with no claims) shows the insurance company you are willing to manage the risks faced in owning or renting a home and for this, you may be rewarded with a home insurance discount.
2. Replacement cost of your home
The replacement cost is a major factor in determining home insurance premiums. The higher your home's replacement cost, the more expensive your home insurance premium will be. The replacements cost of your home is the amount of money required to build the exact home where it is now located. Most insurance companies use an insurance-to-value evaluator to determine the rebuild amount of your home. This is based on factors which include, but are not limited to, the age of the house, construction, square footage, number of floors, if the basement is finished, and other features.
It’s important to know that by accurately matching the amount of insurance protection to your home's replacement value, you can avoid being caught short of coverage after a loss.
3. Does having a mortgage affect home insurance premiums?
Yes! Home insurance providers offer steep discounts to mortgage-free customers and in some cases as high as 20% off your premiums. When you pay off your mortgage, it is still highly recommended that you have home insurance. Remember, you have an investment in your home. Therefore, you need to protect your own interest. Your policy can often still provide needed funds should a damaging event strike the home.
If you have a mortgage, the lender has an interest in making sure your home is adequately insured. The home insurance you purchase protects your own investment in your home and the lender’s investment in case of a loss. This is why mortgage lenders require that homeowners have home insurance.
4. Location of your home
The location of your home is a significant factor in determining your home insurance premium. Insurance companies track the number of claims, type of claims, and the cost of claims in each postal code area. Higher premiums are common in flood and earthquake-prone locations and high-crime neighborhoods. Each neighborhood has different experiences and circumstances, and these statistics are used to determine the likelihood of a potential claim arising. Some companies may limit coverage or the type of coverages provided in the area. It is also good to keep these things in mind when considering the purchase of a home.
5. Age and construction of your home
As a building ages, the risk associated with it increases, and so does the home insurance premium. As the structure wears down, there is a larger likelihood of problems such as faulty wiring or a leaky pipe. Owners of brick homes, newly-built homes, or homes made of fire-resistant materials generally pay lower home insurance premiums. The home insurance premium will, very likely, increase as a home ages.
6. Does square footage affect home insurance premiums?
A home’s square footage affects the home insurance premium. Larger homes cost more to insure, on average, because there is more space and there are more furnishings to replace/repair after a loss. Generally speaking, a 2,500-square-foot home will have a lower home insurance premium that a 7,000-square-foot home: more space, more contents, more home insurance required, higher home insurance premium.
7. Does credit score affect home insurance premiums?
Good credit history can reduce your home insurance premium because statistics show that people with a good credit history make fewer insurance claims. The scoring system considers an individual's financial health and credit performance at a specific point in time. Customers with good credit scores will have lower insurance rates. It’s important to know that inquiries into your credit score and history are recorded in your report. However, a credit score/history inquiry for insurance purposes will not impact your credit rating.
8. Proximity to fire halls and hydrants
If your home is within 8 kilometres of a fire hall or is located within 300 metres of a fire hydrant, you could save some money on your home insurance premium. If there is a fire, proximity to a hydrant or fire hall means the home can be served more quickly by fire services, thereby reducing fire damage and losses.
9. Does having a finished basement affect home insurance premiums?
Yes! Having a finished basement will likely increase your home insurance premium because you will likely want to have these items insured as you would with any living space in your home. This means you will need to purchase more insurance. If you have a home theatre, gym, bathroom, or other features in your basement, it is advised that you insure these spaces and items. You don’t want to find you're not insured for them when you need coverage after a loss.
Share details about your basement with your insurance broker, whether it’s finished, partially finished, or unfinished. Adequate protection is important.
10. Renovations and betterments
When you renovate or make betterments to your home, your homeowners insurance premium will likely go up as the amount of insurance coverage needed has increased. Keep your broker informed about improvements so you can be sure you have adequate insurance for your home.
It is important you contact your insurance broker prior to the renovations taking place as special coverage may be needed in order for you to be covered during the renovations. Renovations may include updating the plumbing, replacing the roof, updating the electrical services, increasing square footage and so on.
11. Does having a pool affect home insurance premiums?
A pool, hot tub, or outdoor spa can increase your home insurance premium because there are increased risks associated with these items such as drowning, slipping, tripping, and other bodily injuries. If you are held responsible for damage incurred, the legal costs can be substantial. It is good to be sure you have home insurance coverage to help protect you in these kinds of situations.
12. Damage prevention and mitigation devices
There are numerous steps you can take to reduce your exposure to losses and damages. These measures can also help to reduce your home insurance premium. Some damage prevention steps and mitigation devices include:
- Keeping your home well maintained. Fix a leaky roof, a leaky pipe, maintain a fence around your pool, prevent damage by rodents and other vermin, and keep up with other home maintenance. You reduce the risk of a loss with well maintained premises.
- Improving your home security. Install fire and burglar alarms. Some home insurance companies offer discounts on your home insurance premium if you have these items in your home, especially if alarms are monitored.
- Update your plumbing, electrical, and heating systems. Up-to-date systems improve your safety and reduce your risk of having problems, losses, and insurance claims. Making these kinds of changes will help reduce your home insurance premium.
- Taking steps to reduce the risk of water damage. Water damage is a leading cause of home insurance claims. Reducing the risk of water damage keeps your home safer and lowers your home insurance costs. Installing water sensors, alarm systems, backwater valves, and alarmed sump pumps are all great damage prevention and mitigation devices.
13. Does having a home-based business affect my home insurance premiums?
Operating a business from your home will not impact your home insurance premium. This is because a business owner operating out of their home may not be covered by a home insurance policy. If you operate a home-based business, even a part-time business, you should inquire about getting a home business insurance policy to be protected appropriately. A business insurance policy can provide coverage for liability, damage to business property, business interruption, errors and omissions, employee liability, and more.
14. Do claims affect home insurance premiums?
Claims affect your home insurance premium. Being claims-free assists in reduced rates with discounts on your home insurance premium of 10% to 15%. Property claims stay on your record for 5 years, and most home insurance companies allow a claims-free discount once you are claims-free for 3 years or more. Being claims-free also provides customers with additional insurance options and choices.
15. Does having a wood-burning stove affect home insurance premiums?
A wood-burning stove will increase your home insurance premium because these items are a common source of fires and carbon monoxide poisoning. This can be especially true if they are not correctly installed and maintained. Insurance companies may want to inspect a wood-burning store before they insure it. Most insurance companies require that a woodstove is professionally installed and Wood Energy Technology Transfer (WETT) certified.
Before buying or renting a home with a wood-burning stove, or installing one, speak with an insurance broker.
Why do home insurance premiums increase?
There are many reasons as to why home insurance premiums can increase. Increased insurance premiums could be a result from an increase in claims from weather events linked to climate changes, the replacement cost of your home may have increased, if you have made any improvements to your home, if you have had a recent claim, and much more.
- In some cases, increased home insurance costs may be due to increased claims from weather events linked to climate change. More frequent flooding, heavy rainstorms, hail storms, tornados, and other weather events have pushed up the number and severity of claims. Increased water damage risks have required insurance companies to increase home insurance premiums.
- Some homeowners may not have proper insurance protection for their homes. The replacement cost of your home may have increased over time – perhaps due to increased material and labour costs.
- Improvements to your home can increase your home insurance premium. Maybe you built an addition, renovated your basement, or installed a pool. These and other betterments can increase your home insurance premium because you are insuring more space and/or items. The increased insurance ensures you are adequately protected in case of a loss.
- Have you had a claim? Perhaps you have lost your claims-free discount. This can increase your home insurance premium.
The Insurance Bureau of Canada provides additional information and tips on buying home insurance.
Where can I get a home insurance quote?
You can get a home insurance quote from Morison Insurance's award-winning brokers. We will shop dozens of Canada's leading insurance companies to find you the best insurance coverage at a competitive rate. Get started today by filling out the contact form on our website, or by calling 1-800-463-8074.
This content is written by our Morison Insurance team. It is provided for general information only. Insurance needs differ from person to person, and this article is therefore not a substitute for professional advice about your individual insurance needs which can be obtained by speaking to one of our brokers.
