What Affects the Price of Homeowners Insurance?

Classification

There are a number of things that affect the price of a homeowners insurance policy. These include:

• The Type of Construction—Frame houses usually cost more to insure than brick houses because they are subject to more extensive damage in the event of a fire. Earthquake insurance is much more expensive for brick homes than frame houses because brick houses are more susceptible to extensive damage from earthquakes.
• The Age of Your Home—Some insurance companies may not be willing to insure older homes or may offer limited coverage. Having a new home may qualify you for a discount on your insurance.
• Available Fire Protection—The quality of your fire department and your home’s distance from a fire hydrant determine the fire protection class of your home and in turn affects the rate.
• The Amount of Coverage—The amount of coverage you decide to buy for your home, personal belongings, and personal property liability will affect the price of your insurance.

Discounts

Insurers often offer discounts on homeowners insurance. Some commonly found discounts are:

• Dead Bolt Locks or Safety Alarms—Insurers frequently offer a discount if you have dead bolt locks or fire and burglar alarms in your home.
• Fire Resistant Material—A home constructed of fire resistant material reduces the risk of a significant fire loss and may qualify you for a discount.
• Multi-Policy—If you buy your automobile, home, and umbrella insurance policies from the same company, you may be entitled to receive a larger discount. Check with your producer.
• Senior Citizen—If you are retired, you may qualify for a discount. Some insurance companies believe that retired persons are around the home more and can prevent potential losses.
• Nonsmoker’s—Some insurance companies believe that there is more of a chance smokers will have a fire than nonsmokers, and offer nonsmokers a discount.

Credit Information or Insurance Score

You may be asked to provide information regarding any bankruptcy, judgments, or credit problems. The insurance company may also ask your permission to obtain a credit report or will disclose to you that an insurance score will be used to complete the premium quote. An insurance score is a number defined by each individual insurance company that is based on information regarding your credit history. Alaska law allows insurers to consider credit information in the selection of applicants and setting of rates. Alaska Statute 21.36.460 sets limits on the types of credit information that may be used, what consideration it may be given, and how often it may be considered.

To obtain your credit history, you may be asked to supply your date of birth, social security number, and current or prior address. A credit score, insurance score, or rating is assigned to you based on information contained in your credit report. More information on insurance scoring and credit scoring are available from the Division of Insurance or can be found on the following websites:

http://www.commerce.state.ak.us/insurance/consumerinfo.htm

http://www.commerce.state.ak.us/insurance/pub/Insurance_Score_Models.pdf

http://www.commerce.state.ak.us/insurance/pub/Know_About_Credit.pdf

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.htm

Deductibles

The higher your deductible, the lower the price of your insurance. Deductibles reduce your premiums because you agree to pay a part of each claim that your insurance company would otherwise have to pay. Insurance companies offer deductibles because deductibles reduce the number of small, covered claims that are costly for insurers to handle. Most insurers sell policies with $250 deductibles, but the higher the deductible you choose, the lower your cost will be. For example, a policy you buy with a $250 deductible will cost more than one you buy with a $500 deductible. Determine how much you can reasonably afford to pay out of pocket if a loss occurs. Your deductible applies only to the coverage you have for your personal property (known as contents coverage) and your home. You are not required to pay a deductible for your liability coverage.