7 Factors That Affect Homeowners Insurance Rates

It happens almost every year: You get mail from your homeowners insurance company, open it and find out your premium is increasing yet again.

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It's enough to drive anyone crazy. To keep your costs as low as possible, make sure you understand the factors that affect your home insurance rates.

Many factors affect the cost of a homeowners insurance policy. These are the most common.

1. Credit Score

People with low credit scores may be more likely to file claims, so insurance companies tend to charge them more. If your score isn't where you'd like it to be, consider paying down debt to reduce your utilization, a measure of how much debt you have compared to your total credit limit. It's also helpful to make on-time payments and avoid applying for too many new accounts in a short period.

2. Age of Home

Older homes cost more to insure because there's a greater risk something will go wrong. For example, if you purchased your home in 1995 and have never replaced the roof, there's an increased risk of damage every time your neighborhood gets a heavy storm. Insurers account for higher levels of risk by charging more for their policies.

3. Claim History

If you file a homeowners insurance claim, your insurance company may assume you'll file another one at some point. Therefore, someone with one or two recent claims will pay more than someone with no claims, as long as all other factors are equal. If you suffer a loss, think carefully about whether it's worth filing a claim with your insurance company. In some cases, you may be better off paying for the damage out of your own pocket.

4. Deductible

In the insurance industry, a deductible is the amount of money you must pay toward your expenses before your insurance company pays anything. For example, if you have a $2,500 deductible, you must pay the first $2,500 of any claim. If your deductible is low, the insurance company has to pay more of your costs. Therefore, the amount of your deductible has a big impact on your home insurance rates.

To keep your costs as low as possible, consider choosing a high deductible when you sign up for a policy. If possible, keep that amount of money in your checking or savings account at all times. In the event of a covered loss, you'll be able to pay your portion of the expenses right away, making it easier to make repairs or replace destroyed items.

5. Location

Your location affects all types of insurance rates, from health insurance to homeowners insurance. The reason location makes such a big difference is because different places have different costs of living. If you live in Los Angeles, it's likely to cost much more to buy supplies and pay laborers than it does in a small town in Kansas. Additionally, some areas have a higher risk of earthquakes, hurricanes and other natural disasters. For example, customers in Florida have to pay more due to the heightened risk of tropical storms.

6. Coverage Amount

The more coverage you need, the more it costs to buy homeowners insurance. For example, someone with a home worth $200,000 will pay much less than someone with a home worth $700,000. If you're concerned about the cost of home insurance, keep this in mind when you're shopping for your next property. You can't eliminate your insurance expenses entirely, but you can reduce them by purchasing a home at a modest price instead of buying something at the top of the market.

Alternatively, think carefully before you do any major renovations. When you upgrade your home, you generally increase its value, making it more expensive to insure. If you don't want your insurance premium to increase too much, you may want to hold off on certain projects.

7. Special Circumstances

The cost of your homeowners insurance may also increase if you have certain dog breeds. No matter how sweet your pooch is, certain breeds are classified as aggressive. Additionally, large breeds may do more damage than small breeds. If you have one of these dogs, your rates may increase accordingly:

• Pit Bull
• Akita
• German Shepherd
• Rottweiler
• Husky
• Great Dane
• Mastiff
• Chow Chow
• Doberman Pinscher

Some insurance companies even refuse to issue policies to homeowners with some of these breeds. Before you buy a policy, check the terms carefully to avoid problems down the road.