written by: J.P. McMillian•edited by: Donna Cosmato•updated: 7/19/2010
Let's examine the factors insurance companies use to determine how much to charge for property insurance and how you can reduce your rates.
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Property insurance can be complicated and every insurance company rates their policies differently, making it hard to know how to calculate property insurance payments. Insurance companies have underwriters and actuaries that determine who is eligible for what policies and how much to charge for those policies. However, there are similarities and some common ground in rating factors for property insurance.
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Characteristics of the property being insured can be a large factor in how much the property insurance costs. The value of the property is a major characteristic, as the cost of insurance is generally a cost-per-hundred or thousand of the property value. The condition of the property is also an important rating factor. Properties in poor condition are more likely to be involved in a claim and, therefore, cost more to insure. There can also be aspects of the house that make a claim less likely, like a hail resistant roof or an alarm system, that reduce the cost of insurance. Finally, the location of the property is an important factor. Properties in high storm-risk areas cost more to insure, as do properties in high crime locations.
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The coverage you choose affects the cost of your property insurance. Your deductible can have a large impact on the rate. Lower deductibles lead to higher rates and higher deductibles can help reduce your cost of insurance. There are also several endorsements and riders you can add to property insurance that increases the cost, but also provides potentially valuable protection. Examples of endorsements are sewer back-up, jewelry and fine-art coverage, and in-home business coverage. It is important to not sacrifice important coverage just to save a little in cost, because a catastrophe not properly insured could be financially devastating.
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Your loss history, or claim history, can also have an effect on your property insurance rates. High value claims and high claim frequency are two aspects insurance companies review when determining your eligibility and rates. High frequency for home insurance claims is more than one or two in a three year period. Typically, storm related claims are either not rated, or rated lower than non-storm related claims. Vandalism and theft are two types of claims insurance companies scrutinize closely, and rate for highly.
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One of the most controversial factors insurance companies take into account when rating property insurance is credit history. Despite multiple lawsuits in various states, it has been upheld that certain aspects of credit are predictable indicators that you are more or less likely to make a property insurance claim. The theory is that people that take better care of their credit and debts also give the same care and attention to the condition of their property, therefore, making it less likely to have a claim. Credit history factors taken into account are payment history, debt to income, percentage of revolving debt, length of time accounts have been open and number of accounts recently opened.
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When looking into how to calculate property insurance payments, you must take into account many factors, including your claims history, credit history, factors about the house and the insurance coverage you choose. It is important to have an even balance of quality coverage with payments you can afford. By keeping your property in good condition, carrying high deductibles, keeping your credit history clean, and only making claims when absolutely necessary, you can keep your property insurance costs low.