How Property Insurance Premiums are Calculated
Do you ever wonder how your insurance company arrived at the amount of premium you are being charged, or why you are paying more or less than someone you know? Your insurance premiums are based on the likelihood that you will put in a claim, as well as the maximum amount your insurance company would be required to pay out if you suffer a loss. In short, the greater the perceived risk, the higher the premium you will be charged. There are several factors that insurance companies take into consideration as they attempt to estimate the likelihood that you will put in a claim, and how much that claim will cost.
The premium you will be charged is largely dependent on the amount required to rebuild your home in the event that you suffer a total loss. When you purchase a property insurance policy, your insurance broker collects information about your dwelling which is then entered into a computer program that calculates your home’s rebuild value. The higher the rebuild value, they more premium you will be charged.
The location of your home can also greatly influence your insurance rate. Insurance companies can use your postal code to track claims made in your area. Based on their past experience in your neighbourhood, they can determine how likely it is you will need to make a claim and charge you accordingly. For example, if you live in an area with a high incidence of water or sewer backup claims, your rates for these coverages will be higher than what you would pay in an area where those losses are rare. Similarly, it is considered advantageous to live in a town with fire hydrants and a fire station, as this greatly increases the chance of saving your property in the event of a fire.
As a building ages, the risk associated with it increase and therefore so does the premium. Therefore, newer homes generally pay lower premiums which increase as the home ages.
The type of heating you have in your home can also affect your insurance rating. For example, you may pay more to insure your home if it is heated by an oil tank than you would if you had a forced-air gas furnace. This is largely due to an increased potential for damage to your property from a leak. Similarly, wood stoves can pose an increased risk of fire, which is why most insurance companies will surcharge your policy if you have a wood stove.
While all the above will affect how insurance companies rate your policy, your premium amount can also vary depending on whether or not you qualify for any discounts, how much and what kind of coverage you purchase, and the deductibles you choose. Please contact our office to see if there are any opportunities to save you some money on your insurance policy!
Our Langenburg office is open weekdays from 10:00 am – 2:00 pm
We are open over lunch!