10 Factors that can affect your home insurance premium

Insurance companies take a number of factors into consideration when determining your home insurance premium. If the data suggests you are likely to make a claim, you may be deemed high risk and consequently face a higher premium. Conversely, if you are considered low-risk, you will receive a cheaper premium.

To make this determination, insurance companies consider the following:

1. Where you live.

Home insurance providers use detailed local statistics to track the number and severity of insurance claims. If your neighbourhood has a high number of burglaries, vandalism, house fires, or anything else that might potentially lead to a claim, you can expect a higher home insurance premium.

2. Heat source.

How you heat your home can have a big impact on your home insurance rates, as some heat sources are inherently riskier than others.
 

• Radiators are considered safe by insurers, as they rely on hot water rather than combustible substances to distribute the heat throughout your home.
• Wood stoves are at the other end of the spectrum. If they are not maintained properly, they can cause carbon monoxide poisoning and are a common source of house fires.

3. Type of electrical distribution.

In Canadian homes, especially those built before the 1950s, knob-and-tube wiring is commonplace, but insurance companies are increasingly reluctant to provide coverage to any house that still has it. Over the years, either through tampering or simple deterioration, this technology has become a fire risk.

Most Canadian insurers will give you a few months to remove and replace it with insulated wiring. Once this work is complete and a licensed electrical contractor has approved it, finding an affordable home insurance rate will be much easier.

4. Pipes and plumbing.

As with electrical, the age of your home is a good indicator as to whether or not plumbing will be an issue. Older homes, built before the mid-1950s, used lead piping. This type of plumbing has eroded over time, making it more likely to crack, leak and lead to a home insurance claim. Insurers will reward plastic or copper pipes, more modern and stable technologies, with a lower home insurance rate.

5. Age of roof.

The roof over your head does much more than keep you dry. Modern roofs are surprisingly complex; the angle of the pitch has been perfected to ensure the best possible water run-off, the materials used for tiles is lighter and more durable than ever, and the introduction of fascia and soffits means the roof over your head allows for proper ventilation, decreasing the likelihood of trapped water and mould. Considering this, insurers may provide a cheaper quote to a house with a roof that is less than 20 years old.

6. Primary use of your home.

If you are planning to rent out your basement, allow people to book your spare room on Airbnb, or even use your house as a home office, you must inform your insurance company to ensure you’re covered for these usages. Any peripheral use of your home (aside from normal living), will increase your premium as it increases your coverage.

7. Your claims history.

Past claims are the best predictor of your future insurance needs. If you have a history of making insurance claims, insurance companies will consider you high risk and will set a higher premium. A no claims history, especially if you have had home insurance before, will reassure insurers that you are deserving of a lower rate.

8. Proximity to fire hydrant and fire station.

If a fire does break out in your home, insurers want reassurance that the local fire service will be able to put it out quickly. If you live in a city, your proximity to a fire station is unlikely to make a dramatic difference to your insurance, as all properties should be accessible. However, if you live in a remote area, especially if there is no water source nearby, a fire could do a lot of damage before help arrives, and as a result, you will face a higher insurance premium.

9. Alarm system.

An alarm system, especially one that is monitored by a home security service, will act as a deterrent to thieves and will help lower your home insurance costs. The same is true if you install a monitored security system.

10. Value of your home (replacement cost to rebuild)

The largest home insurance claims come from catastrophic disasters, whereby the whole property has to be rebuilt from scratch.

For this reason, the square footage of your home, and the construction materials used to build it, are hugely influential when it comes to determining your insurance. The larger and more valuable your home, the more it will cost to rebuild, and the higher your premium will be.

Tips on getting the cheapest home insurance

Follow these tips to ensure you’re getting the cheapest home insurance rate:
 

1. Shop around – Property insurance rates change frequently. They usually increase, but if your neighbourhood has seen a reduction in crime, or you have made improvements to your home, insurers might be willing to offer a lower premium. The company offering the cheapest rate this year may not be the cheapest when it comes time to renew your policy next year. Take advantage of the best available rates by shopping around before every renewal.
2. Increase your deductible – Most home insurance policies default to a $1,000 deductible, which is the amount you pay in the event of a claim. If you are willing to take on a larger share of the financial risk, increase the deductible and pay a lower monthly premium.
3. Pay your premiums annually – Ask your insurer about paying your home insurance in one annual lump sum, rather than in monthly installments. Many companies are willing to offer a reduced rate for this.
4. Multi-line discount - Bundle your home insurance together with your car insurance and you could save up to 15% on each! The insurance company is rewarding you for using more of their products.
5. Safeguard your home – Taking steps to safeguard the physical structure of your home, (e.g. replacing the roof, modernizing the heating system, adding a sump pump, installing an alarm system) reduce the likelihood of you needing to make an insurance claim. Tell your insurer as soon as these improvements occur, and your monthly payments could go down immediately.
6. Lifestyle changes – Quitting smoking? Mortgage paid off? Getting married? These are just some of the factors that could help reduce your home insurance premium. As with changes to the physical structure of your home, tell your insurer as soon as these things happen to benefit from immediate savings.
7. Review your policy annually - Check your coverage every year. If you no longer need certain protection, removing it from your policy is a way to reduce costs.
8. Ask about discounts – Ask your provider if they offer any discounts or incentives to their customers and see if you qualify. For example, special rates are sometimes offered to alumni of local universities.