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10 June, 2021 0
Home Insurance Premiums

Understanding How Home Insurance Premiums Are Calculated

In the U.S., the average annual cost of homeowners insurance is about $1,300. The actual cost varies from one policyholder to another depending on factors such as home value, size of coverage, and the risks involved. Read on to understand how insurers calculate your home insurance premiums.

How Are Homeowners Insurance Premiums Calculated?

To calculate your insurance premiums, most insurance carriers follow these 3 steps:

  • Calculate the pure premiums

    This involves calculating premiums for a group of homeowners living in the same area and exposed to the same risk. Here, the insurer finds the total value of the homes in the area and divides it by the size of exposure per unit. Finally, the pure premium will be 5% per dollar of your property value.

  • Find the expense ratio

    This includes the administrative costs, taxes, and other expenses that the insurer incurs.

  • Set a premium

    Here, the insurer divides the pure premium by 1 and subtracts the expense ratio to generate the gross premium.

  • Why Is the Cost of My Homeowners Insurance So High?

    If your homeowners insurance cost is very high, then it most likely means that your home is high-risk. This is because insurance providers charge higher premiums where high risks are involved, or in worst cases, deny you coverage. The high premiums are meant to cover the perils that are most likely to occur. For instance, if you live in wildfire-prone areas such as the Lake counties of California, you may have to pay high insurance premiums.

    Tips for Lowering Homeowners Insurance Costs

    Regardless of the amount the insurer charges you, the following tips can help you lower the homeowners insurance costs:

  • Raise your deductible

    This will lessen the insurer’s burden of paying for repairs and replacements

  • Bundle your policies

    This can earn you discounts on your home insurance policy

  • Mitigate the risks in your home. For instance, you can burglar-proof your home or install smoke detectors to lower the risks of theft and fire, respectively.

  • Refurbish the roof

    Worn-out roofs increase the risk, and hence, you should either replace or refurbish your roof.

  • Ask for discounts

    You can also ask for discounts depending on your age, marital status, claims history, and risk mitigation measures.

  • Factors That Determine Homeowners Insurance Premiums

    When calculating your homeowners insurance premiums, the insurance provider will consider the following factors:

  • The value of your home
  • The history of perils and crime rate in your home location or neighborhood
  • The number of claims on your CLUE report
  • The type of construction materials used in your home
  • Aggressive pets
  • High-risk property such as a swimming pool or trampoline
  • Home security and fire alarm systems
  • Age of your home
  • Number of inhabitants in your home

How Can I Save Money on My Homeowners Insurance

The cost of homeowners insurance coverage fluctuates from time to time due to factors such as the number of claims filed or the frequency of natural disasters in your location. This means that you should keep comparing quotes from different insurance carriers until you find what suits your budget. This way, you will probably land a lower quote and save on your home insurance.

To calculate your home insurance premiums, insurers typically follow the steps discussed in this article. Some of the things you can do to lower your home insurance costs include improving your home’s security and disaster preparedness, increasing your deductible, and comparing quotes from different insurers. For assistance with all your home coverage needs, contact our experts at Fuller Insurance Agency in Southern California today.

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