Why does homeowner’s insurance go up?

If you’ve landed on this webpage, you probably received your bill and noticed an increase in your homeowner’s insurance premium.  You haven’t filed any claims so why should it go up?

Just like gas prices, costs for insurance goes up and down.  It depends on the insurance company’s financial performance – did they lose or make money on the premium they collected?  Insurance companies use the premiums they collect to:

1.       Pay claims

2.       Pay operating expenses

3.       Invest

The most common types of claims are weather related claims.  An increase in wind and hail claims has caused many insurers to greatly increase their rates. They’ve also reduced benefits for these types of claims.  Some companies have increased wind and hail deductibles, and/or now offer only depreciated settlement amounts for roofs.  Which means, if you have a 10 year old roof, your settlement would not be the cost to replace it with a new roof.  It would be for the value of a 10 year old roof (less your deductible).

The operating expenses of an insurance company can also impact your rates.  Have you noticed all the insurance commercials on TV?  We’ve got Mayhem, Flo, The Gecko, and the Good Neighbor telling us how great their insurance is.  These TV ads are funny, clever, and costly!  A large advertising budget may cut into their profits. By the way, did you know there are many excellent insurance companies that don’t advertise on TV? 

Investments are another way insurance companies make money.  They invest some of the premium they collect, and if the stock market is performing well, prices will be stable.  Interest rates also play a factor.  If interest rates are low, they won’t make as much on their investments. And interest rates have been historically low for the past 10 years. If the insurance companies aren’t making money on investments, rates will go up. 

How can you keep your premium down?

• Watch your claims history.  Turn in only claims that you can’t handle.  If you turn in small claims will costs you more in the long run. An insurance company can surcharge your policy 10%-30% for a claim, regardless of how much they pay out, and it stays on your record for at least 3 years! And if you have more than one claim in a 3-5 year period, the increase is higher.
• Increase your deductible.  The standard deductible these days is $1,000.  If you have a lower deductible, call your agent to see how much you would save if you increased it.  If you have a home valued more than $1,000,000, you may want to see how much you would save with a $2500 or $5,000 deductible.
• Watch your credit score.   Insurance companies run credit scores when they give you a quote, and rerun them on their policyholders every 1-3 years, depending on the company. The better your score, the better the rate.  
• Bundling your auto and home together may give you a better rate.
• Add a life insurance policy.  Some insurance companies discount your premium if you also have life insurance with them.
• Ask your agent if there is anything else you can do to reduce your premium, but be careful not to shave off important coverages to save a few dollars!

If you’re still not satisfied with your rate.  Start shopping your insurance.  You should get quotes from several insurance companies or agents, but make sure you are getting good coverage from an A rated insurance company (see AM Best Rating Service) .  Ask the agent to included the following:

• Make sure it’s an HO3 or better, an HO5, for a single family home

• Guaranteed or Extended Dwelling Replacement Cost
• Personal Property Replacement Cost
• Ordinance or Law – at least 10% but if you can, get 100% coverage (it may cost only several dollars more!)
• Back up of Sewers and Drains (if needed)
• At least $300,000 Personal Liability coverage
• See if they are giving you replacement cost coverage on your roof.
• Will they repair or replace “like, kind, and quality”?  This means if you have plaster walls, you will get plaster walls (not drywall) if they are damaged. 

If you’re in the Chicagoland area, you can give us a call at 847-430-3342 for a quote.  We have many companies we represent and will shop your insurance for you!