(BPT) - Getting the best price on home insurance, without sacrificing the quality of coverage, may be easier with a basic understanding of how insurance companies calculate your premium.
“Many different variables factor in when calculating premiums,” says Bob Hertel, product development director with Acuity Insurance. “Some pricing variables are within the policyholder’s control, and some are not — such as your age, age of your home and its location.”
But there are at least four factors that customers can influence that contribute to home insurance premium calculations. Here’s what they are and how to make sure they add up to the lowest possible price:
1) Roof quality. Both the age and type of roofing material affect your premium. Customers should notify their agent when making upgrades to their roof. When a home gets a new roof, some insurance companies will reduce the premium, and some companies will pay more for roof replacement in the event of a future claim.
“Homeowners’ premiums are typically discounted when a roof is built with tile, slate, metal or hail-resistant roofing materials,” Hertel says. “These roof surfaces are more durable than asphalt/fiberglass/composition materials, making them less susceptible to wind, hail and fire damage.”
Asphalt/fiberglass/composition shingles are very popular in most parts of the country. This type of shingle typically has an expected life of 12 to 30 years, depending on quality of materials and installation. Hertel adds that it’s important to frequently check your roof for shingles that appear to be cracked, curled or loose.
“As shingles weaken, water can seep into the home, potentially causing major structural damage,” Hertel says. “A professional roofing company is most qualified to determine if repair or replacement is recommended.”
2) Credit. Most insurers in most states reward favorable credit scores with lower premiums. The insurance industry has found a strong correlation between responsible use of credit and claims activity. A poor credit score need not result in a permanent pricing penalty. Insurance companies typically order score updates at renewal and will discount premiums when credit scores improve.
3) Deductible. You might choose to increase your policy deductible to reduce your annual premium payment. Hertel only recommends increasing your deductible if you’re comfortable paying that amount out of pocket when a home claim occurs.
4) Bundle. Most insurance companies discount home and auto insurance premiums when they’re bundled.
“Beyond the bundle discount, some insurers also provide a single deductible feature,” Hertel says. “If one’s home and auto are damaged in the same storm, the customer is responsible for paying only one deductible.”
There are other cost-saving measures that could further reduce premiums, but Hertel recommends avoiding these actions:
1) Dwelling limit reductions. Policyholders can reduce their dwelling limit — the maximum amount that an insurance company will pay to rebuild a home to cut costs — but Hertel warns against this approach.
“High dwelling limits help protect your financial well-being in the event you need to rebuild your home,” Hertel says. “Given the high costs of building materials and skilled labor, rebuilding your home today can be very costly. If you reduce your dwelling limit, you could be on the hook for any reconstruction costs that exceed your policy limit.”
2) Liability coverage. Included with each homeowners policy, liability coverage can be written at high limits for a low price. High limits are recommended to protect your finances in case you are sued for injury to another.
3) Eliminating optional coverages. This may be another enticing approach to lower insurance costs, but doing so can have a significant impact on what the insurance company will pay following a claim.
For example, in the event of a total loss, guaranteed replacement cost coverage ensures the insurer will pay to rebuild the same home at the same location, no matter the cost. In cases of widespread disaster — when labor and materials are in peak demand — this coverage protects you from potentially large out-of-pocket reconstruction costs.
“Insurance shopping advice often focuses on finding the cheapest price,” Hertel says. “But finding the cheapest insurance can often leave you with unintended coverage gaps. Independent insurance agents are available to help customers find the right coverages, limits and discounts to meet their needs, and can also provide important support in the event of a claim.”