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The Insurance Policy you Choose Should be Guided by your Coverage Needs

While shopping for home insurance, buyers can get confused by a multitude of technical jargons and insurance terminologies. Although insurance companies provide coverage for different types of damages, the coverage they provide can vary between one policy and another. Policies in the home insurance market are generally named the following – HO1, HO2, HO3 etc.

Depending on your provider and policy type, there can be differences in your insurance coverage.The main difference between a condo and a townhome is the legal structure of ownership rather than construction type. Usually, in a townhome, apart from ownership of the structure itself, you also own the land beneath it. This can include exterior space like a patio, backyard and front yard. Whereas, in the case of a condominium, you own everything within the four walls of your unit and not any exterior space outside. With that in mind,  townhome owners need coverage for damages to the structure of the home, the exterior space as well as other structures on it. Condominium owners on the other hand need to buy coverage just for the structure of the home and the interior space within it.

Read Gavop’s detailed description about the various types of homeowner policies, as well as find our list of cheap providers for the policy type you have chosen.

Your Home Value and Coverage Range Has a Major Influence on your Insurance

The value of your home is a big factor in deciding your insurance rates, as providers need that information to assess how much expenditure they have to incur in case of a claim. The coverage you choose should be guided by various factors, such as the replacement cost of your home, how risky is your locality to live in, the value of your personal belongings etc. “Replacement cost” is a term used in the insurance market to indicate the amount of money that will be needed to rebuild your entire home exactly the way it is now. In order to estimate it, one needs to evaluate the price of construction in the current market, as well as the cost of labor at the time that the claim was filed.

Gavop has shown comprehensively how home value and coverage, changes median premiums across states.

Choose a High Deductible to Lower your Premium Rates

Deductible is a very important part of any home insurance agreement. Primarily, it is the amount of money that a homeowner agrees to pay out of his or her pocket, in case of casualty. Usually choosing a higher deductible means that you pay a lower premium.

The following tables are an example of how choosing a higher deductible affects home insurance premiums in the state of Delaware.

CoverageDeductiblePremium
$150,000$500$603
$1,000$576
CoverageDeductiblePremium
$150,000$500$840
$1,000$800
CoverageDeductiblePremium
$150,000$500$1,063
$1,000$1,051
CoverageDeductiblePremium
$150,000$500$1,506
$1,000$1,476

The tables show how a higher deductible impacts your premium for different coverage values.

There are other reasons also for raising your deductible. For example, if you pay a low deductible you might be tempted to file a claim even for minimal damages. But homeowners with a history of a high number of filed claims are viewed as potentially high-risk customers by providers. Therefore it is better to choose a higher deductible and file for claims only in the case of extensive damages. However, the choice of deductible should also depend on how much you can afford to pay out of your pocket at a short notice. For instance, if it is difficult for you to pay $1,000 out of your pocket in a moment’s notice then it makes more sense to go for a $500 deductible even if that means paying a slightly higher premium.

Age of Your Home Plays a Big Role in Your Insurance Rate

With prolonged usage over time, electricity, plumbing and some other aspects of your home may become faulty. It is natural therefore that insurers will consider older homes to be more high-risk. To help you understand this better, Gavop evaluated premium increase by age of homes in California. The data is presented in the graph below. While making this calculation, we considered a coverage value of $200,000.

As can be seen from the above chart, home insurance premium tends to increase in proportion with the age of your home.

Bundling your Auto and Home Insurance Policies Helps you Earn Discounted Rates

For insurance providers, adding a new client and setting up a fresh policy from scratch is always more expensive. It is much cheaper for them to “upsell” or sell additional services to an existing customer instead. Which is also why they prefer existing customers to bundle their home and auto insurances from the same company. You can avail discounts ranging between 5 and 15% by bundling your insurances with the same provider. However, you should check before bundling policies, for whether the combined price of the two is actually lower than buying individual policies from different providers.

Choose Low Risk Construction Material for your Home

The construction material used for your home is a big factor of consideration for home insurance providers. In the US you can find houses made from various construction materials, such as brick, frame, masonryk and stucco. Some of them are relatively cheaper for builders, but might be considered more susceptible to fire or other damage by insurance providers. Also, the location of your home has a big say in the matter. For instance in a place like Texas – which is prone to wildfire – frame construction houses are considered far more high-risk as they have flammable walls and roofs. So the risk-probability of a particular type of construction also plays a big role for insurance providers when assigning premium rates.

Find Gavop’s comparison of savings by construction type for individual states, here.

Inform your Insurance Provider if you Plan on Remodeling your Home

Any remodeling done by you will probably impact the value of your home. This is because the price of construction material needed for remodeling increases over time. It is best to keep your insurer updated before you undertake a remodeling project– whether it be a minor bathroom upgrade or a major kitchen renovation. This is usually suggested because, if your remodeling project was expensive, it will be equally expensive for your insurer to rebuild in case of some damage.

It’s true that informing them will likely increase your premium rate, but on the other hand – it will also keep your coverage up to date. So in the event of some damage, you won’t have to pay out of your pocket for recovery.

Buy Higher Liability Coverage if you Have a Swimming Pool at your Home

The Insurance Information Institute recommends homeowners who own swimming pools to increase their liability coverage to about $300,000 or $500,000. Swimming pools, hot-tubs, spas or trampolines are luxury features that you can add to your home; however, they are also potential sites for someone to get injured at. It’s not uncommon for kids to be in the vicinity of such water fixtures without adult supervision and while this might come across as paranoia to a few, there is evidence of this being a potential risk factor in most homes that have a swimming pool. Center for Injury Research and Policy stipulates that more than a 1,000 children die by drowning in swimming pools each year while many others are injured.

To cover for potential damage from such accidents, experts recommend buying additional liability coverage, even though that might  increase your insurance premium by $50 to $100.

Married Customers can Save More on their Home Insurance by Adding their Spouse to their Agreement

It is a truth universally acknowledged that insurance providers tend to favor married customers. Many surveys conducted over the years have proved that married consumers are less likely to exhibit risk taking behaviours. They also tend to file the lowest number of claims.

If you are a married consumer you have the opportunity of gaining discounts by bundling your policy with that of our spouse’s. For insurance providers this is a big incentive. It costs a lot to add a new customer and to set up a policy from scratch than to add on to a pre-existing policy. Along with that, it also helps that you have the opportunity of bundling several insurances together, such as car insurance, home insurance etc. Not only is this financially profitable for you, but it is  also lucrative for providers, given the probability that you and your spouse would own a home and an automobile, therefore more likely to bundle your insurance policies and in turn stay with the same insurance provider.

Your Claims History Plays a Major Role in Determining your Home Insurance Premiums

Frequent claims made against your home insurance can result in an increase of premium rate or in the worst case scenario, even a denial of an agreement. Gavop’s data shows how the average premium increased in the states of Montana, Texas and Louisiana with the addition of a claim history in recent years. In the states of Montana, Texas and Louisiana, premium rates increased by $340-$570 for consumers with a recent history of filed claims.

However, just because you have a claims history does not mean that your insurance rate will be high. The price can vary depending on your insurance provider. Read Gavop’s analysis of how claims history affects your insurance rates.

Your Credit Based Insurance Score Helps You Keep a Tab on your Ratings

FICO credit scores are ratings that banks check in order to decide whether to lend you money or not. Similarly, insurers check another kind of credit rating called Credit Based Insurance (CBI) score, in order to determine your homeownere’s premium and in extreme cases, even deny you an agreement.

Some of the factors that can harm your CBI score are – multiple accounts where you haven’t paid your bill by the due date, high usage of available credit, numerous bank or credit accounts and a high number of recent applications of credit. Safe to say that paying your bills on time is a factor that invariably improves your CBI score. Another factor that carries significant weight is the amount and type of outstanding debt.

While you may not have access to CBI scores - since they are not released publicly - you can however hire an insurer to calculate it for you. Barring California, Maryland and Massachusetts where state laws do not allow insurers to check credit history, it is the one factor that can change your premium by as much as 30%.

Even though, both banks and insurance providers check your credit history, there is a difference in how they go about it. Banks want to check the information in order to figure out if you are eligible for a loan. Insurance providers do the same in order to determine your premium rates. So if your CBI score is low then it might be useful to do either one of the two things: shop around to find an insurer who will give you the best rates for your credit history, or do something about your finances - whether it be bill payments or credit card usage. In some exceptional cases like a serious illness in the family or death of a family member, providers may overlook your credit history. And needless to say, in such cases you need to make sure that you keep your insurer updated.

Installing Additional Fire Safety Devices Helps You Lower Insurance Rates for Homeowners Located in High-Risk Areas

ISO or Insurance Services Office is an institution that rates fire departments on their ability to protect your home and community, and how well equipped they are to handle a calamity. The Fire Suppression Rating Schedule (FSRS) of ISO has four parameters on which they award fire rating scores:

  • The level of staffing, their training, and proximity of the firehouse to the locality.
  • The quality of emergency communications systems (like 911) in the area.
  • Availability of water, fire hydrants etc.
  • Outreach programs conducted by the community- conducting fire prevention and safety courses.

The score obtained by communities on this rating system is known as PPC or Public Protection Classification. The score ranges from 1 to 10, with 1 being the safest and 10 meaning that the minimum requirements of ISO were not met by the fire department. So an area that is located more than 5 miles away from the nearest fire station, would automatically obtain a score of 10 in this rating.

For insurance companies these scores mean a lot, as they can identify low or high-risk subjects. However, the method of assessment of your ISO score may vary across insurance providers. Meaning, as for some companies, your home’s proximity to a fire station is just as important as assessing if fire alarms or sprinkler systems are installed in your home. Therefore, if you see that your home insurance premiums are higher because of your ISO rating, it might be good for you to shop around to find another provider that offers you lower rates for the same score. On the other hand, if you find that your neighborhood has a poor fire score, it might be a good idea to install additional devices like smoke alarms or sprinkler systems.

Homeowners Located Near a Water Body Should Buy Additional Coverage to Save on Potential Damages

Just like homes located in areas that carry fire hazards or in areas prone to crimes, homes that are located close to a water body are also comparatively more risky to insure. Most  water bodies carry a significant risk of flooding. You will not find coverage for flood damage in a standard home insurance policy. It might be a good idea to purchase a separate coverage for flood damage, even if your home is not considered to be in a typically high-risk zone for floods. According to data from the III.org, 25 percent of claims for flood insurance are from homes that are not located in high-risk areas. Since we cannot guarantee what the future might bring, it is a safe option to buy insurance for flood damage if your home is located near a water body.

If that body of water happens to be an ocean, in other words if a homeowner resides on a coastline, he/she might also need a separate hurricane or windstorm policy in their insurance agreement.

According to the Insurance Services Office (ISO), the highest percentage (35%) of losses in homeowners insurance happens from wind and hail damage. The second-highest percentage (30%) comes from water damage and freezing. This information underlines the importance of buying extra coverage for potential damage arising from proximity to a water body. Even though it might add a few extra dollars to your premium, in the event of a calamity, it saves you from heavy losses.

Home Insurance Companies Do Not Provide Coverage for Dogs of All Breeds

Normally, if your dog damages someone’s property or bites or injures someone, the homeowner liability in your insurance provides coverage for it. However, most insurers restrict dog liability coverage for certain kinds of dog breeds.

Some typical breeds that are generally excluded are: Pit bulls, German Shepherds, Akitas, Staffordshire Terriers, Chows, Alaskan Malamutes, Doberman Pinschers, Great Danes, Siberian Huskies, Rottweilers, Presa Canarios and wolf-dog hybrids.

If you happen to own one of these breeds, your company will either ask you to exclude dog liability coverage or cancel your policy. Off this list, Rottweilers and wolf hybrids are usually completely prohibited by insurance providers, and as far as the rest go, it is decided on a case by case basis.

Compare Home Insurance Prices Offered by Various Providers to Make Informed Choices

While buying home insurance, the importance of shopping around can never be overstated. There are a variety of reasons for providers to offer lower prices for houses of the same age group, construction type, replacement value etc.

Gavop analyzed insurance premiums from 13 states: Texas, New Hampshire, Oklahoma, Montana, Maryland, Louisiana, Kansas, Hawaii, Florida, Delaware, Colorado, California and Alaska. We ranked providers accordingly into the cheapest and most expensive categories. While the following charts provide a comparison in terms of insurance prices, one should keep in mind that Gavop considered only median premiums by provider, and that there are many other factors that decide home insurance prices for a consumer. The charts therefore are for reference purposes only.


Read Gavop’s state-wise study of how much consumers can save by choosing specific providers.