by Amy Lillard
(5/15/2012) Looking for home insurance can seem challenging. But if you know how insurance premiums are determined, you can better understand if the quotes you find are appropriate.
Ultimately, insurance companies are concerned with risk. If you have certain factors that increase risk of damage, or increase the amount a company would need to pay in case of damage, your premiums will be higher.
In general, insurance companies use a few key methods to determine the risk you represent and the quotes they provide.
Where you live is perhaps the biggest factor behind home insurance prices. Certain states, cities, and neighborhoods within those cities are more prone damage than others, according to insurance company statisticians. If you live in an area where theft is more likely, or more susceptible to natural disasters like floods or earthquakes, your rates may be higher. But even smaller factors play a role, like the distance to fire or police stations.
Older homes are usually more expensive to insure, as building codes were less stringent in the past. Additionally, insurance companies will consider the condition of heating, electrical and plumbing systems into the price of your insurance. Finally, the type of construction used on your home is another prime consideration, as certain building materials are better able to withstand damage.
Have a swimming pool? It's a huge boon to your lifestyle, but also increases the likelihood that someone could get hurt on your property. Since home insurance policies typically cover liability costs in case of personal injury, features in your home and property like swimming pools could raise costs.
The cost and current value of your home will directly affect the cost of rebuilding in case of disaster. That means higher premiums in cases of newer and more valuable homes.
As most insurance policies cover the costs of your personal property, and particularly any valuables like jewelry, art, antiques, or others, the more valuable your property the higher the rates.
Finally, in addition to the property you own, insurance companies are also interested in your behavior and your patterns. Your credit history, for example, is a major factor in considering your ultimate risk, and the premiums you will need to pay. Lower credit scores typically suggest more a claims risk - if your credit score is low, expect to pay more. Additionally, if you have a history of filing claims, whether with home insurance or other insurance policies, you will probably incur more monthly cost. You can check your CLUE report, or your history of claims, to know what insurers will see about you.
With this background in mind, you're better prepared to find the best homeowners insurance quotes.
For additional reading:The Cost of Insurance: Anatomy of Premium
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