Have you noticed that your home insurance rate has been slowly creeping up over the years? You’re not alone! While many factors go into determining your home insurance rate, filing a claim is only one of the things that can affect it. Insurance rates are based on more than your personal claims history, and some factors can be out of your control, like insurance trends.
So why are home insurance rates rising as the years go by? Here are ten reasons why your home insurance rate is rising, and how you can keep your premium as low as possible.
“Undervalued” Or “Underpriced” Home Insurance
Ten years ago, home insurance companies were more generous when it came to writing up their home insurance policies because large claims were not a common occurrence. The policies covered a wide range of replacement costs.
Additionally, there has been an increase in home value/coverage need, which leads to a higher insurance rate once your policy renews. Sometimes, homeowners simply don’t have enough insurance for their home. Most policies cover up to a mortgage’s balance on the house to protect the bank, or the home’s market value. These days, labour and material costs have been rising, causing a home rebuild to be more expensive than its market value.
Another factor is the fact that renovations and remodels increase a home’s value as well, so this increase in insurance reflects that increase in value.
To sum it up, if you notice that your home insurance rate is rising, it could be because your home was underinsured, you made a substantial renovation or addition, your neighbourhood’s property value went up or your home was assessed at a higher value than previously found.
Over the years, extreme weather events in Canada have become increasingly frequent. For example, we have experienced more flooding, hurricanes, winter storms and other natural disasters. This means that many insurance companies have had to pay out more claims due to severe weather. Insurance companies have raised their premiums so that they can cover this increase in the payouts they are making.
Even if your home has not been affected by any extreme weather conditions, you may still be paying higher premiums. Insurance companies have responded to these conditions by redistributing the costs to their policyholders, as well as changing weather-related policies. You should review your policy in order to understand what is or isn’t covered when it comes to the weather.
Since the 1950s, homes have tripled in size from an 800 square foot average to 2,300 square feet. Currently, the average home in Canada is about 1,900 square feet. Since your home insurance is not calculated on the house’s actual market value, but the cost of rebuilding and repairing, this means bigger homes have higher costs when it comes to replacement value. This translates into higher home insurance premiums.
In addition to having bigger homes, homeowners are choosing to have more expensive fittings installed such as granite countertops. These cost much more to replace than older types of countertops.
Bigger homes also means that homeowners need to fill them with more personal items! These homes need to be furnished. And if you think about things like wine cellars, media rooms and finished basements, your contents are going to be costly to replace should anything happen. That means, yes, your insurance will also cost more. Most households have more than one TV or laptop, and new appliances and furnishings all add up.
More and more homeowners are renovating their basements, and on average, they are spending about $60k for their basement remodel. A finished basement adds tonnes of value to your home, and makes your basement and its contents more expensive to replace or repair during a claim.
Basements are typically a source for many claims because of basement flooding, and contribute largely to home insurance claims. Water damage can ruin contents like media and entertainment rooms, and expensive flooring or living spaces.
Inflation rates affect replacement costs, and as the cost of repairing your house increases due to rising construction costs. In 2020, the expected inflation rate is 2.3%. As these replacements cost rise with rising construction costs, your home insurance premium rises as well in order to cover these higher costs.
Risk Concentrated in Your Area
Insurance companies want to diversify their risk, so if they insure a large percentage of homes within a certain geography, they will increase rates in this area in hopes that some policyholders might leave and get with another carrier. This is so the insurance companies decrease their risk of a major event hitting a concentrated area, and therefore, get a lot of claims. Aggressively hiking the rates is a standard risk management technique used by insurance companies.
An attractive nuisance refers to something on your property that appeals to children but can threaten them with harm. This includes swimming pools, jungle gyms or trampolines, for example. Because of the increased risk of these attractions, you will have more potential liability if something were to happen on your property. This can cause your insurance to increase.
One of the most obvious reasons for raised insurance premiums is your claims history. If you had filed a lot of claims in the past, your account may be flagged as an increased risk. Liability claims, water damage claims or theft claims will have your insurance company watching you like a hawk. Generally, you should try not to file claims, especially for trivial or minor damages. As a rule of thumb, you should only file a claim if it will be two to three times your deductible.
The Truth About Fido
Your dog might be your best friend, but not when it comes to your insurance premiums. Dogs bring increased risk to your property, and dog bites cost insurance companies millions every year! If your furry friend bites anyone on your property, that includes the mailman, then you are liable for any personal injury. This means that insurance companies might increase your premiums, or even refuse to cover you, depending on what breed of dog you have.
These were the top ten reasons why your insurance premiums increase each year.
Rhett Desormeaux is a content writer currently working with BreezeMaxWeb. He’s a passionate writer and loves studying ancient history, especially Bronze Age civilizations.