When determining your home insurance premiums, insurers will gauge how much of a risk you are to invest in. If your chances of filing a claim are much higher than those of the average homeowner, then you are likely to pay a much higher premium overall.
On one hand, insurers use very different formulas to measure risks posed by clients. However, there are generally several common factors that will be viewed as high insurance risks by most carriers (even though each might place different weights upon each factor). Let’s take a look at how a few of the commonly known and used risk factors can influence your eventual premiums.
• Bankruptcy and Poor Credit
In this instance, it's not the home that's high-risk, but rather the homeowner. If you have bad credit or if you've filed for bankruptcy, then your insurer has reason to suspect that you might not be the most responsible homeowner. They might also assume that you won’t pay your bills on time.
In some instances, this assumption may be unfair. We've all been dealt a hand of bad luck now and then. Even so, insurance companies need to crunch the numbers and evaluate risk as best they can from an objective standpoint. Still, as your finances improve, so too might your insurance rates.
• You are Insuring a Vacation Home
The problem with a vacation home is simple: If something goes wrong, it might be months before anyone finds out about it. A burglary, for instance, might not be reported until it's ancient history. A burst pipe might spew water for weeks.
Homes that are vacant for a significant portion of the year tend to be regarded as higher risk, simply because there's nobody keeping watch. Even if you plan to be away from your regular home for an extended period of time, you will likely need to notify your insurer.
• You have a Home Business
If you run a home business, you're going to be better off protecting that business on a separate policy, rather than relying on your home insurance policy to cover it. Most homeowners insurance policies won’t cover commercial assets. Operating a home-based business can even lead to you being turned down for coverage if you don’t disclose it to your insurer.
• Your Zip Code
High-crime or high-value neighborhoods are the very definition of high-risk. The same goes for neighborhoods in danger-zones for natural disaster. There are both higher risks of claims occurring, and when they do occur, they could lead to more significant payouts from the insurer.
Understanding your homeowners insurance risks can seem tricky. However, you can work with your agent to better understand where your risks lie, and what you can do to improve them. Talk with your insurer to see what your options are.