How Are Home Insurance Rates Calculated?


How Are Home Insurance Rates Calculated? If you’re shopping around for homeowner’s insurance, you may have gotten several estimates. The quotes varied significantly—even if the coverage levels each carrier provided were the same.

Getting such wildly different home insurance rates might leave you wondering, “How are home insurance rates calculated?”

Along with: “What can I do to lower mine?”

Fortunately, this is not top-secret insurance agent information. We want to be able to negotiate the lowest insurance rates for our customers. If we can find you a lower rate than our competitors, you’re more likely to recommend us to your friends.

You’re happy to pay less for your homeowner’s insurance, and we’ve created a repeat customer who trusts us. Everyone wins.

Understand the 4 Major Factors That Go into How Home Insurance Rates Are Calculated

When it comes to home insurance rates, a little knowledge goes a long way. Once you know how home insurance rates are calculated, you can do everything in your power to try to qualify for the lowest premiums.

Factors that affect home insurance rates fall into four broad categories: Your home, the items in your home and on your property, your location, and your behavior, including your credit history.

Your choice of insurance agent and carrier, of course, will also affect your rates.

Of course, some things will be out of your control when it comes to home insurance prices. But if you focus on several key areas, you could find yourself saving hundreds of dollars a year on insurance.

Let’s look at the steps you can take to improve your standing in each category to qualify for the lowest rates.

Choose Your Home Carefully for Lower Insurance Rates

If you’re shopping around for a new home and would like to save money on your homeowner’s insurance, it helps to know why some homes cost less to insure. Additionally, you can lower your current homeowner’s rates by making some strategic upgrades to your house.

Newer Homes Have Lower Insurance Rates

You might be surprised to learn that newer homes often have lower insurance rates. The parts of your home covered by insurance, including your heating and AC systems, hot water heater, roof, windows, and fencing, are less likely to break in a newer home.

Newer homes are also constructed with newer, safer building materials. If you are shopping for a new home and want to save on your homeowner’s insurance, consider a house where supports are constructed from brick and concrete rather than wood, which is more flammable.

Homes in Better Condition Cost Less to Insure

Similarly, the condition of your home can affect your home insurance rates. If you’d like to save some money, you may consider replacing your roof if it is more than 15 years old.

New windows and doors may also lower your home insurance rates, but the insurance discounts won’t make up for what you spent.

Even so, these upgrades can ultimately improve your home’s resale value, ramp up its curb appeal, and just make it more pleasant to live in. If you can afford it, there really is no downside.

You can also upgrade older HVAC systems, plumbing, or wiring. Taking these steps could make your home safer and less prone to fires or floods, and the insurance companies like that.

High Value Home Insurance Rates 1

Know How Much Your Home Will Cost to Replace

You might be wondering if the size of your home affects your home insurance rates. Not surprisingly, it does — but not directly. Your home’s replacement value is a major factor in your home insurance rates – and larger homes cost more to replace.

If you live in an area where building costs and labor are high, you can expect to pay more for home insurance because you will have a higher replacement cost.

Do not choose a broker who says you don’t need Full Replacement Value coverage on your home. If your house burns down, you want to have enough money to rebuild. This is especially true if you got a great deal on a foreclosure or a short sale, or if you purchased your home years ago and you didn’t pay a lot for it by today’s standards.

Sure, skimping on Full Replacement Value with a smaller policy can lower your insurance premiums, but if anything happens, you could wind up homeless or living in an apartment rather than using insurance to pay for your new dream home.

Understand the Risk Factors on Your Property to Keep Your Home Insurance Rates Low

Most people know that owning a swimming pool or a trampoline can raise your home insurance rates. In the industry, we call these “risk factors.” Understanding risk factors, as well as purchases that may qualify you for discounts on your homeowner’s insurance, can help lower your rates.

Choose Your Dog Carefully

Certain breeds of dog are considered “aggressive,” or “high-risk.” Even if your family Pitbull is the sweetest pup you’ve ever owned, data suggests that this breed may be more likely to attack. And some insurance companies aren’t willing to take that risk, while others will raise your rates for owning such a dog.

Ask your insurance agent if your dog is considered “dangerous” or “blacklisted.” Your agent might be able to shop around for a carrier with a higher tolerance for this particular risk or provide other ways to mitigate the risk and lower your insurance costs.

We wouldn’t advocate for getting rid of a beloved family pet, but if you are shopping around for a new dog, consider a low-risk breed if you want to keep your home insurance rates low.

Alarm Systems and Other “Smart” Sensors May Offer Savings

A smoke alarm is usually mandatory when you are insuring a home. But installing a monitored alarm system may yield discounts on your premium, as can several other devices designed to protect your home and its inhabitants.

Today’s high-tech “smart” (internet-enabled) devices that alert owners and the authorities in the event of a flood or a gas leak may also qualify for homeowner’s insurance discounts. Even passive sensors, which can be purchased inexpensively at home improvement stores, may be eligible for as much as a 10 percent credit on your home insurance.

Ask your insurance agent about discounts for internet-enabled doorbells (like Ring), security cameras, and smart lighting systems, which may also reduce the risk of theft and vandalism.

Long Island Home Insurance RatesLocation, Location, Location

Almost as important as the age, size, and condition of your home is your home’s location.

Insurance carriers use many factors to determine if your home is in a low-risk or high-risk area, which affects your home insurance rates.

Avoid High-crime Areas

If you live in a neighborhood characterized by high rates of crime and vandalism according to the insurance companies, you could pay more for insurance.

If you’re planning a move, ask your insurance agent if the neighborhoods you are thinking about are considered safe.

Waterfront Homes Carry Greater Risk

Coastal homes face a greater risk of floods and hurricanes. Here on Long Island, certain areas may require flood insurance.

But even if your mortgage broker or insurance company doesn’t demand flood insurance, you could pay more to insure a home on the north or south shore.

Talk to your insurance agent to determine if your home is in a high-risk area.

Move Near the Fire House for Peace of Mind and Lower Home Insurance Rates

Do you live near your local firehouse? If so, you may be one of the lucky ones enjoying a discount on your home insurance.

If you’re considering a move, ask your insurance agent if your new house qualifies for lower rates due to its proximity to the firehouse.

Likewise, if you live in a rural area on the East End, miles away from the local firehouse, you could pay more for homeowner’s insurance.

The Community You Choose Makes a Difference

If you live in a gated community or a community regulated by a Homeowners Association (HOA), you could save money on your home insurance.

Gated communities provide a level of security you won’t find in any other neighborhood, while HOA’s often have neighborhood watch programs that make the community safer.

HOA’s may also hold the residents to a high standard when it comes to upgrades and safety features in their homes and on their property, leading to lower insurance rates for everyone in the area.

Understand How Your Credit Score and Life Choices Affect Your Home Insurance Rates to Save Hundreds Each Year

Some states don’t permit insurance carriers to pull a homeowner’s credit score to determine their home insurance rates. New York is not one of those states.

In New York, having good credit could mean you will pay less for home insurance.

If you’ve experienced a recent bankruptcy or foreclosure, have missed too many payments on your credit cards, or have a high credit utilization ratio (your balances are too high compared to the available credit on your credit cards), you could pay more for homeowner’s insurance.

New York uses a specific formula to calculate home insurance rates based on your Credit-Based Insurance Score.

Your CBI score is similar to your FICO credit score. Your FICO score is the number lenders use when determining if you are a safe credit risk and if they should give you a loan or extend a line of credit to you.

But a low FICO score doesn’t necessarily mean your CBI is also suffering. That’s why it’s important to understand your CBI score and how you can raise it over time.

Credit Score Home Insurance

Your CBI Score Considers Late Payments a Risk

The most significant factor in your CBI score is whether or not you are making timely payments. To keep your CBI score (and your FICO score) high, always pay your bills on time.

Your insurance carrier will look closely at car insurance and past homeowner’s insurance payments, if applicable, to determine if you’ve made any payments more than 30 days late.

Credit Utilization Matters

Just as with your FICO score, a high ratio of balances to available credit can adversely affect your CBI score.

However, if you’ve just purchased a house, your mortgage will show nearly 100% credit utilization. This shouldn’t affect your CBI score as much as, for instance, a credit card with a $5,000 credit line and a $4,900 balance.

Insurance Claims Matter, Too

Have you ever been in a minor fender bender and decided to pay for the damage out-of-pocket instead of making an auto insurance claim?

That may have been a smart choice because your auto insurance carrier could raise your rates if you make too many claims.

Some companies even offer discounts for going more than a year without an insurance claim.

Homeowner’s insurance companies operate the same way.

If you make too many claims, you could be considered high-risk. As with auto insurance, your rates could go up. Your current carrier may even drop you, and you’ll be forced to find another carrier willing to insure you.

If your claim is just a few hundred more than your deductible, or if you can easily pay for the damage out-of-pocket, pay for the repairs yourself to keep your home insurance rates down.

It’s best to save homeowner’s insurance for a catastrophe, such as a major property loss or if someone is injured on your property.

Lower Your Rates with a Higher Deductible

If you don’t plan to make any insurance claims for damage to your property that will cost under a few thousand to repair, you may be able to ask for a higher deductible, which could result in lower premiums.

Rather than paying that money to an insurance provider when you might never make a claim, keep money in the bank for small repairs and to cover your insurance deductible in the event of a catastrophic claim.Home Insurance Bundles

Quit Smoking to Save More

Are you a smoker? You probably already know you could be taking years off your life, spending hundreds each month on cigarettes, and paying more for life and health insurance. But you could also be paying higher home insurance premiums.

Due to the increased risk of fire, home insurance carriers typically charge more if a smoker resides in the home.

Ask About Discounts for Older Homeowners

Consider it a perk for living longer.

Some insurance carriers offer discounts for older adults who are retired. Retired people who stay home during the day are more likely to spot a problem in their homes, such as a fire or a burst pipe, before it causes expensive damage.

The length of your credit history factors also into your credit score, so older adults may have higher credit scores if they’ve been managing their credit well their whole life.

Find an Insurance Broker Willing to Shop Around for You

Knowing how insurance rates are calculated can help you find a carrier that will provide you with the lowest prices.

Choose a Carrier with the Right “Risk Appetite”

Different insurance carriers specialize in serving customers with certain levels of risk.

For instance, some carriers are willing to take on the risk of a home by the water.

Others may not penalize you for having a blacklisted breed of dog.

Some specialize in customers with a low credit score.

Your insurance broker can help you find a carrier whose “risk appetite” – the amount of risk the carrier is willing to accept – matches your situation.

Bundle Your Policies for Discounts

You can often get discounts on your homeowner’s policy by bundling your home insurance with your auto insurance policy and any other policies you need, including life insurance.

Your broker can help you get the best rates on all your insurance premiums.

Find a Broker You Can Trust

Of course, who you select as an insurance broker can also affect your rates.

Find a broker willing to ask the right questions and spend time looking for the best carrier for homeowners like you, based on your neighborhood, your region, risk level, credit score, and the amount of coverage required.


Need assistance now?

Give us a call:
(631) 782-3175

Homeowners Insurance Articles

Home Insurance Articles

Insurance Market Tightens Amid Higher Claims and Regulation

Insurance Market Tightens Amid Higher Claims and Regulation

Florida and California steal the headlines with seasonal hurricane and wildfire losses, but across the nation, insurers are tightening underwriting standards. In some cases, insurers are pulling out of certain zip codes or states altogether. It seems counterintuitive...

How Does Inflation Impact My Homeowners Insurance?

How Does Inflation Impact My Homeowners Insurance?

The recent spike in inflation affects nearly every aspect of life, including insurance costs. But inflation can also affect how well your home is protected against common losses, such as fires, burst pipes, and other risks covered by a standard home insurance policy....