20 Factors That Affect Your Home Insurance Rates

January 24th, 2020

A two-storey detached home overlaid with text reading 20 factors that impact home insurance rates.

Insurance companies use complicated calculations to determine home insurance rates. Here are 20 factors that affect your home insurance premiums: 

  1. Style and Construction Material of the Home 
  2. Square Footage of the Home 
  3. Age of the Home
  4. Age and Material of the Home’s Roof 
  5. Age and Type of Plumbing, Electrical and Heating Systems 
  6. Other Structures  
  7. Presence of Risks 
  8. Use of the Home 
  9. The Claim Rate of Your Neighbourhood 
  10. The Crime Rate of Your Neighbourhood 
  11. Proximity to Risks 
  12. Proximity to a Fire Hydrant and Fire Station 
  13. Estimated Rebuild Cost of the Home 
  14. Estimated Replacement Cost or Actual Cash Value of Belongings 
  15. Your Demographics 
  16. Your Credit Rating 
  17. Your Insurance and Claims History 
  18. Damage Prevention and Mitigation Devices 
  19. Discounts 
  20. Your Coverage Options 

We’ll explain each factor in more detail below.

Style and Construction of the Home 

The style of home affects your home insurance rates because certain styles of home may be more likely to have a claim or suffer from a particular type of damage. For example, bungalows often have finished basements which can make water damage a concern. 

What the home is built out of will have a major impact on your home insurance rates. This directly affects the cost of rebuilding the home and the likelihood and extent of damage that can happen with a claim. Homes built from fire-resistant materials (such as concrete) often cost less to insure. 

Square Footage 

The more square footage your home has, the more expensive it will be to insure. There is simply more to replace if you have a claim.  

Age of the Home 

The age of the home helps insurance companies understand the likelihood of a claim and the cost to rebuild the home. Building codes and construction methods have evolved over the decades, as has heating, plumbing and electrical systems. Older home can be at a higher risk for damage, depending on when they were built and what systems they have in place. When it comes to rebuilding cost, older materials and features may be more expensive to repair or replace.  

If your home has updates or damage mitigation devices, make sure you tell your insurance company, as this will affect your home insurance rates. 

Age and Material of the Home’s Roof 

The roof is a primary protector for your home. It shelters it from the outside elements. Damage to the roof is also a common home insurance claim. The newer your roof, the better, when it comes to home insurance rates. Newer roofs tend to do a better job protecting the home. You may also see a discount if you use weather-resistant materials for your roof. 

Some insurance companies will not insure you or will only offer reduced coverage if you have a roof over a certain age. 

Age and Type of Plumbing, Electrical and Heating Systems 

The type of plumbing, electrical and heating systems installed in your home directly affect the likelihood of a claim. Outdated systems are far more likely to damage your home. Here are some examples: 

  • A knob-and-tube electrical system has a higher chance of overloading and starting a fire. 
  • Lead pipes are more likely to crack and leak. 
  • Oil- or wood-burning heat are more likely to start a house fire. 

If your home has an older type of plumbing, electrical or heating system, you will likely pay higher home insurance premiums. Alternatively, you can update these systems to have a safer home and save on your insurance. 

Other Structures 

Your home insurance generally covers other structures on your property such as: 

  • Garages 
  • Carports 
  • Decks 
  • Sheds 
  • Outbuildings 
  • Fencing 

The type, size, construction material, and other elements of these buildings will also affect your home insurance rates. 

Presence of Risks 

Certain risks will increase your home insurance rates because of the increased likelihood of damage or liability claims. This includes: 

  • Indoor or outdoor pools 
  • Hot tubs 
  • Trampolines 
  • Wood-burning stoves or fireplaces 
  • Certain breeds of dogs 

Use of the Home 

There are two common uses of a home that will affect your home insurance rates: 

  1. Home-based Business 
  2. Rental Rooms or Suites 

Normally, a business would not be covered under your home insurance. Any business property that was damaged wouldn’t be covered, nor would you be protected if a client made a liability claim against you if they slipped and fell in your driveway. However, many home insurance companies offer add-on coverage to include protection for home-based businesses. This does come with a surcharge.  

If you rent out a room or basement suite in your home, this can raise your home insurance rates. This is because renting comes with added liability risks. However, the benefit to you is that you can get fair rental value for your rental room or suite if you have a covered claim. 

The Claim Rate of Your Neighbourhood 

Insurance companies look at the overall claim rate of your neighbourhood to see how likely it is that you’ll make a claim. The higher the claim rate, the higher your home insurance premiums will likely be. 

The Crime Rate of Your Neighbourhood 

Your insurance company will also look at the crime rate of your nieghbourhoods – things like vandalism and theft can raise your rates. 

Proximity to Risks 

How close you are to risks like rivers and lakes can affect your home insurance rates. For example, a river can be a source of flooding. If you live near a river or in a low-lying area near a river, you may pay higher premiums than if you lived on a hill or farther away. 

Proximity to a Fire Hydrant and Fire Station 

How close you are to a fire hydrant and fire station affects your home insurance rates because the closer you are to these resources, the better the chance that the damage can be minimized. Your insurance rates will be lower the closer you are to a hydrant and fire station. 

Estimated Rebuild Cost of the Home 

The estimated cost of rebuilding your home is a major factor in your home insurance rates. Most home insurance companies call this replacement cost. It is the estimated cost of rebuilding your home as is if it is destroyed. Keep in mind, this value is usually different than the home’s real estate market value, which would include the land as well.  

The rebuild or replacement cost of the home includes the price of materials and labour. 

Getting a home appraisal is one way to determine if your home is insured for the right replacement cost value.  

Estimated Replacement Cost or Actual Cash Value of Belongings 

Your home insurance will also cover your belongings. There are two options when it comes to protecting them: replacement cost or actual cash value. If you choose replacement cost, you will receive the amount it costs to replace those items with something the same or of similar make and quality (for an insured claim, up to the single item* and policy limit**). If you choose actual cash value, you will receive payment for the market price of your belonging as it was if you would’ve sold it the day it was destroyed in a covered claim (again, up to the single item or policy limit). 

If you have a valuable collection of art, jewellery, wine or collectibles, you may want to purchase an add-on coverage that ensures this collection is properly protected. The same applies if you have valuable sports or electrical equipment (such as bicycles or gaming computers). These items can often be worth more than the single item limit so it is a good idea to ensure they’re fully covered. 

Creating a home inventory is a great way to figure out the estimated replacement cost or actual cash value of your belongings – and it’s very handy if you ever have a claim. 

*A single item limit is the maximum amount you will receive if you have a covered claim for a single item.  

**The policy limit is the maximum amount your policy will pay out if you have a covered claim. 

Your Demographics 

Insurance companies use statistics to determine the likelihood of a claim occurring and then price your home insurance accordingly. Certain segments of the population are more or less likely to have a damage or liability claim.  

For example, the older you are, generally the lower your home insurance rates will be. 

Your Credit Rating 

Your credit rating tells the insurance company how likely it is that you’ll pay your insurance bills. You can get a discount for a good credit rating and it does not count as a hit against your score. You can also opt to not have your credit rating checked by the insurer. 

Your Insurance and Claims History 

The more years of consistent insurance that you’ve had and the fewer claims you’ve had will get you lower home insurance rates. Statistically, the more claims you have, the more likely you are to make more. Zero claims may make you eligible for claims-free discounts as well.  

Damage Prevention and Mitigation Devices 

Damage prevention and mitigation devices can lower your home insurance rates. These devices can include: 

  • Fire and smoke alarms 
  • Carbon monoxide alarm 
  • Water alarm 
  • Monitored security alarm 
  • Security lighting 
  • Security cameras 
  • Sewer backup valve 
  • Sump pump 

Keep in mind that devices may need to be approved by the insurance company, who have certain requirements. 

Discounts 

Every insurance company offers different discounts. Here are some common ones: 

  • Claims-free  
  • Bundling (multiple insurance policies with the same insurance company) 
  • Loyalty 
  • Damage prevention and mitigation devices 
  • Mortgage-free 

Your Coverage Options 

You have lots of decisions to make when you buy home insurance which is one reason you should work with one of our expert home insurance brokers. Your options include: 

  • Policy limits 
  • Coverage 
  • Deductible 

A policy limit is the maximum amount that will be paid out in the event of a covered claim. There are also other limits that apply within your home insurance policy such as the single item limit (the most that will be paid out for a single item in a covered claim) and a section limit (which is the maximum amount that will be paid out under a certain section of your protection, such as liability).  

You also need to decide on your extent of coverage. Home insurance comes in many different forms and you can customize the protection to fit your needs. For example, if you run a home-based business, you should have a home-based business endorsement. This add-on coverage will extend your insurance to cover damage and liability claims related to that business that would otherwise not be covered. 

You’ll also need to choose your deductible. This is the amount you pay out of pocket before your home insurance covers an insured claim. The higher the deductible, the lower your home insurance rates. 

Questions About Home Insurance Rates? 

If you have questions about your home insurance premiums or coverage, contact one of our experienced brokers today. They can explain your protection and answer your questions. 

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