Be Careful: These 5 things will Increase Home Insurance Premiums

These days, it seems like the average Canadian homeowner is easily paying more than $100 per month in home insurance. It can be a big part of someone’s budget, especially for first time home buyers.

There are certain things you can do to at least make sure the rate stays the same, but some factors are just out of your control. Here are five factors that will affect the price of your home insurance.

1. Have a low deductible

The easiest way to increase home insurance premiums is to decrease the size of your deductible.

Many insurance policies come with a standard $500 deductible, but it’s easy to switch it to $1,000. Or, if you’re really risk averse, even $250 deductibles are available.

Increasing your deductible decreases your rate. First, a higher deductible decreases the amount the insurance company has to pay out for small claims. Second, it discourages making small claims in the first place. A decrease in claims is good news for an insurer, which then passes some of the savings back to the customer.

2. Excessive claims

I’ve always viewed home insurance as the worst case option. It’s there just in case the house burns down or there’s a break-in.

Yet many people will make a claim on their insurance even if the damage is small. Say you have a $1,000 deductible, and you get damage that’ll cost $1,200 to repair. You’re likely better off to just pay it out of pocket and not make a claim, since the insurer will increase home insurance costs next year to compensate for the loss from the claim.

3. Worse credit

Especially when you shop for a new policy or renew, your insurance company is taking a look at your credit score. It’s part of the fine print that ends an application.

If your credit score goes down substantially, it will affect how much you pay. The same sorts of factors that lead to a credit score dropping tend to lead to someone becoming a higher insurance risk. They go hand in hand. You’ll pay more if your credit is impaired.

4. Insurance industry issues

The insurance industry hasn’t been a great performer since the Great Recession of 2008-09.

The insurance business works like this: The company takes your premiums and invests them. The gain on the invested premium minus any claims is the insurance company’s profit.

Most of the money ends up in safe investments, like bonds. Because interest rates are so low, insurance companies have been forced to increase premiums to make up for lackluster investment returns. This is good news for insurance company shareholders, but bad news for homeowners, since it can mean an increase in home insurance premiums.

5. Blindly signing renewals

The financial services industry loves customers that go with the same company come renewal time, whether it’s a mortgage or home insurance.

If you shop your home insurance each year, there’s potential to save some major cash. I’ve heard of people saving hundreds of dollars just by spending five minutes of their time using rate comparison tools. A good place to start shopping is with the same company that has your car insurance, since many offer discounts when you bundle two or more services together.

Unfortunately, your home insurance is still likely to creep up each year. But if you use these five tips, you’ll at least slow down the inevitable.

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