WHAT AFFECTS YOUR PREMIUM?
Of course you want to protect your belongings and enjoy the peace-of-mind insurance can provide. You might be wondering, though, how your monthly insurance premiums are really calculated. Are they “one size fits all,” or customized for every individual or covered asset? Are you paying more than what’s standard or more than your fair share? You’re not alone – lots of people have these same concerns!
Let us be your reassurance partner by sharing some insights about how the insurance industry really works!
The reality is, every insurance premium you pay takes into account several important factors — and knowing how your premiums are computed can help you make choices that will maximize your available benefits and minimize your exposure to risk.
WHAT INSURERS CONSIDER
Your coverage(s) value
The value of your possessions can dictate how much insurance coverage you need, which – in turn – determines your premium. It makes sense that $1 million of liability coverage costs more than $500,000. Additional coverages, however, such as Scheduled Property (extra protection for specific, high-value items that may have limited coverage under a standard policy, like jewelry, art, or antiques), Extended Replacement Cost (pays a certain percentage beyond the policy limit to replace a damaged home. Similar to a Guaranteed Replacement Cost policy, which has no percentage limits), Accident Forgiveness or Auto Rental Expense, can also increase your cost.
Location, location, location!
This familiar phrase doesn’t refer to just restaurant success or real estate value. Location also impacts homeowner risk. If you live in a high-crime area, your house and vehicles have a greater chance of being vandalized. Many areas of the country have a higher chance of weather-related losses. Your proximity to a fire hydrant or fire station can also influence your premium.
Not all states allow credit ratings or insurance scores to be used as a factor in determining premiums. In states that do, however, several factors are taken into account, including:
- Financial Accounts: your number and type of credit accounts, such as installment accounts, revolving accounts, etc.
- Past Payment Performance: your number and timing of any late payments
- Stability: the length of your credit history
- Adverse Public Records: any collections, civil judgments, tax liens, or bankruptcies
- Debt: balances you owe, compared to your available credit limit
Brand… age… materials
A BMW is more expensive to repair or replace than a Ford Fiesta. Newer homes typically have a lower probability of damage due to electrical or plumbing malfunctions, roof leaks, or wear-and-tear. Likewise, houses constructed of brick are more resistant to damage by wind or fire. Conversely, wooden shake shingles and siding are susceptible to damage by fire and moisture.
Recent claims or violations
Claims, accidents and violations represent an increased risk of future losses. Insurance carriers transfer this increased risk to you by increasing your premium. Underwriters look at five years of claim history for homes and, usually, three years for auto accidents and violations.
YOU STILL HAVE SOME CONTROL
Aside from the fixed costs, insurance premiums are largely based on risk. If you decrease your risk of loss, your premium can go down. Here are a few things you can do to lower your cost of coverage:
Adjust your deductible
The deductible is the portion you pay out-of-pocket before the insurance company pays for a loss. Typically, the higher your deductible, the lower your premium. Your agent can advise you on an appropriate deductible based on your assets, exposures – and optimal budget.
The newer your home’s systems are, the less your chance of loss, so carriers often reward you with a discount. You can reduce your risk — and often lower your premium — by updating your electrical, plumbing, or roof. Installing protection devices, such as fire and burglar alarms, water and seismic-gas shut-off devices, gas-leak detection systems, and temperature-monitoring systems, is often rewarded with discounts as well. Likewise, an automobile security system can help lower your car-insurance premium. If you’re buying a new car, ask your carrier about a new-vehicle discount!
Bundle your coverage
One of the largest discounts offered by insurance companies is the multi-policy or multi-line discount. When you have your home and auto insurance with one carrier, you can save.
Look before you relocate
If you’re considering buying a home, check and compare the crime statistics in different areas. If you have the option, look for a house in a gated community.
Make the grade
Insurance companies tend to reward a history of safe driving. You can also reduce auto-insurance premiums by taking advantage of a defensive-driving course or good-student discounts, if applicable