By Shannon Ireland
What if you were to open your home insurance statement one day and find that your premium had increased? Some reasons for home insurance premium spikes are widely known, but others may surprise you. Here are some common factors that can drive up your home insurance costs.
No, your location didn’t change. But some things about it might have. If it has become more prone to damaging severe thunderstorms and tornadoes, powerful winter storms and even strong dry winds that feed wildfires, you could face higher premiums.
The other way location could play a factor is if local building costs have increased substantially. Much of your premium is based on how much it would cost to replace your home should it be destroyed by a covered peril such as fire. That’s determined by multiplying the square footage of the home by local building costs, then adjusting that number to account for upgrades to the home such as granite counter tops and hardwood floors.
Fluctuations in local building costs mean it’s quite possible that the replacement value of your house could go up while the market value of it — the amount you could sell it for — goes down. Online calculators can help you check the replacement value.
As your home ages, it can cost more to insure. Why? Because it becomes more vulnerable to many issues.
Let’s start at the top. The older the roof gets, the more susceptible it is to damage. According to the Insurance Institute for Business & Home Safety, roof damage occurs in up to 95 percent of wind-related property losses each year. There’s no magic age for when your premiums will rise, but as the roof enters the mid-teens, you could see increases.
The same is true for your plumbing, electrical, and heating and cooling systems. As they age, they become much more likely to leak (in the case of plumbing) and cause fires (in the case of the latter two systems).
Additions to your home
Whether you’re building that luxurious master bedroom you’ve been dreaming of, adding a swimming pool, or installing a trampoline or a treehouse for the kids, your premiums can spike. Increasing the square footage of your home means that it would cost more to rebuild, so you can see why that would affect your premium, too.
The pool, trampoline and treehouse are called attractive nuisances because they can appeal to children who don’t understand the danger involved. That opens you and your insurer up to lawsuits if a visitor — even an uninvited one — gets hurt.
These attractive additions force insurance providers to view your home in a more dangerous light, and your insurance costs will reflect the changes.
Owning certain dog breeds or an exotic pet such as a tiger or monkey will drive your insurance costs up because you’ll need more liability coverage. In 2013, one-third of all home insurance liability claims involved dog bites and $483 million was paid out, according to the Insurance Information Institute.
Exotic pets are even riskier to own, as they are, by definition, wild. Since they are so unpredictable, your insurance costs could see a significant hike in order to cover potential attacks on guests or passersby.
Running a home business
A home business requires countless additional materials such as computers, phones, file cabinets and other office supplies. To cover these numerous supplies in case disaster strikes, your premiums can rise.
Depending on the type of business you run, there could be increased liability risks. If a customer or client slips and falls in your home, standard homeowners insurance won’t apply. You could be responsible for medical treatment and legal damages unless you add business coverage.
Your credit took a dip
What’s your credit have to do with your home insurance premium? Plenty. In states where it is permitted, providers examine your credit report for factors they believe predict your likelihood of filing a claim. They consider homeowners with better credit to be safer risks, and charge them substantially less.
If your credit score gets worse, you could pay much more for coverage.
What can you do about the increases?
Some price increases are out of your control and others are due to additions you’ve been dreaming of for years. But you can do something about a larger premium:
- Shop your coverage at least annually. Providers vary widely in how they evaluate risk, so you could get a better deal elsewhere.
- Ask about discounts. One common discount that could save you up to 20 percent on premiums is purchasing your home and auto coverage from the save provider.
- Increase your deductible. Your deductible — the amount you agree to pay out of pocket toward a claim — has an inverse relationship with your premium. The higher your deductible, the lower your premium. However, you must be careful to keep the deductible at an amount you can afford to pay should it be necessary.
Despite potential spikes, always be honest with your provider so that you’ll be protected no matter what peril may come your way.
- To Tell the Truth: Consequences of Lying to Your Insurance Agent
- Is Forgoing Earthquake Insurance Worth the Gamble?
- 6 Problems Your Home Insurance May Not Help With
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
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