Home Insurance: Factors That Determine Rates On Premium

Factors That Determine Rates On Home Insurance

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Home insurance, also commonly referred to as homeowners insurance is an insurance policy that provides cover on loss or damage of property, personal possessions, home or its contents. This article offers a detailed perspective on home insurance and factors that determine rates on premium.

A homeowner has to bear the entire expense of damage or loss to property in case he/she doesn’t have home insurance cover. The expenses borne on reconstruction or rebuilding can be exceedingly high and drain you of your finances. With adequate home insurance cover you are assured that the insurance company will compensate the damage or loss that occurs to your home due to an unforeseen event. An individual needs to pay the insurance company a premium in accordance with the type of home insurance policy he/she avails. The terms and conditions that govern home insurance policy vary in accordance with country and state.

With a home insurance policy you can safeguard the future of your house. Any loss or damage to property that occur due to events that are beyond the control of the individual is compensated by the insurance company.

The insured is the individual that pays the premium to the insurer, the insurance company. The holder of the policy needs to make a claim on damage, destruction, or loss of contents to be compensated. The insurance company scrutinizes and evaluates the claims in accordance with the policy before compensating the holder of the home insurance policy. If a claim made is not included under your homeowner’s policy, the insurance the insurance company will not compensate that claim. Make sure you purchase adequate home insurance to protect your property from loss or damage.

Financial intuitions that lend mortgage loans to borrowers require that individuals borrowing the loan purchase homeowners insurance. This is done to protect the bank in the event the home is damaged or destroyed. In case the value of the land or property exceeds the amount on borrowed mortgage loan, the mortgagee may not require the mortgager to carry homeowners insurance as the damage or destruction to the property or building will not affect the lender in the event of foreclosure and recovery of the entire amount on the loan.

Damages occurring through war, flood, or termite attacks need to be claimed under special insurance. The standardized home insurance forms that are commonly used are:

  • Basic Form - HO1
  • Board Form - HO2
  • Special Form - HO3
  • Renters Insurance - HO4
  • Premier Homeowner Policy - HO5 (Comprehensive Form)
  • Condominium Policy - HO6
  • Older Houses - HO8

The HO3 (special coverage) and HO5 are popular among homeowners as it offers protection on property on most risks. Each insurance form mentions and states the various scenarios that are excluded or included under the type of insurance policy.

Factors that determine rates charged on premium

Individuals that avail of a home insurance policy need to pay a premium to the insurance company. The annoying aspect of home insurance is the fluctuating rates among different insurance companies. Individuals are charged different rates on premium on similar policies by insurance companies, and this infuriates people. Individuals find it intriguing that the similar home insurance policies are charged different rates on premium. However, there are reasons why rate charged on same/similar home insurance policies vary. Several factors are considered to determine the rate on premium. Here’s why individuals have to pay different premium rates on the same home insurance policy.

Location of the house

Insurance companies take into consideration the location of the house while fixing the rate on premium. If a house is located far away from a fire station, the risk of it being gutted down by fire is high; this scenario compels insurance companies to charge a high rate on premium. A house located in close proximity to a fire station is charged a lower premium as there is less risk of it being destroyed by fire.

Material used in construction

The material used to construct your home also determines the rate fixed on premium. A house constructed with concrete, brick or stone will be charged a low rate on premium as the risk of it being destroyed by vandalism, fire and stormy weather is less. Houses constructed with wood are charged a higher premium as the risk of them being destroyed by a fire and vandalism is exceedingly high.

Where you live

The neighborhood you live also determines the rate on premium. If you have a house in a neighborhood that is prone to violence, riot, vandalism and theft be assured you will be charged a high premium as the risk of your home being robbed, vandalized and destroyed is exceedingly high. A house located in a peaceful neighborhood will be charged a low premium as the risk of violence, vandalism and theft is minimal.

Use of security and safety devices

A house with sophisticated safety and security devices such as fire alarms, burglar alarms, fire sprinklers, smoke detectors, CCTV, and dead bolt locks will be charged low premiums on home insurance as the risk of the house being burgled is minimized with the presence of these devices. A house without safety or security devices will be charged a high premium as the risk of it being burgled is high.

Credit History

Insurance companies use credit information of the homeowner to fix the rate of premium. An individual with a good credit record is offered discounts as he is considered a credit worthy individual. Although individuals with a bad credit history are not refused home insurance, they are charged an exceedingly high rate on premium.

Aside from the aforementioned points several other factors such as the age, condition and type of plumbing and electrical circuitry of a house are also considered to fix the rate on home insurance.  

 Points to Consider Before You Avail of Home Insurance

It is necessary to be aware of the various scenarios and events under which your house is covered by the policy. When you avail of home insurance make sure you ask the insurance agent of the company questions about inclusions and exclusions in different types of home insurance. The knowledge of what is included and excluded in a home insurance policy is important as you get a clear picture on the various scenarios claims are to be made, in the event of loss or damage to your home. If you purchase (bundle insurance) auto insurance or any other type of insurance along with a home insurance policy insurance companies may offer a sizable discount. Keep an eye on new insurance companies as they are willing to offer discounts on policies.


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  • iggy  26-11-2017
    This is an informative article, I wonder if many of the things are the same here. I know our insurance is expensive and it high risk areas in is too high for many people to afford. Near the ocean the flood insurance is outrageous and in dry areas it is fire insurance that is crazy. The best thing you could do is live in an area with no high risks present.
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    • realityspeaks  01-12-2017
      Thank you. Yes, it can be rather disheartening when insurance cover on a similar structure differ or vary due to the factors mentioned.
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