How Are Home Insurance Premiums Calculated?

Your home is one of your most prized investments that must be protected at all costs. It’s your shelter against the elements and keeps you comfortable and safe. For this reason, home insurance is one aspect that you must fully understand before you take the leap. Home insurance helps you overcome the damage caused to your home by providing financial recuperation.
In order to insure your home, you must pay an insurance premium periodically. Typically, these payments are made on a monthly basis, but some insurance providers might have an annual payment plan.
Here’s how your insurance premium is calculated:
Divide the losses
When it comes to setting a premium, insurers tend to group homeowners together. The losses expected from that particular group—depending on the risk factors they present—is calculated. If a particular group of homeowners has incurred losses of $500,000 on a property worth $100 million (cumulative), it results in .5 cents per dollar to recover losses. This figure is known as the pure premium.

Administrative costs
Administration costs are second in line when calculating insurance premiums. Administration costs cover the expenses incurred by the insurance provider like rent, payroll, utilities, etc. Commissions, taxes, and target profits are also added to the administrative costs. The pure premium is divided by the expense ratio for the gross premium.
Why is my home insurance so high?
Despite these figures, some homeowners have higher insurance premiums. There are several factors that may cause this. Every factor is weighted differently, according to the unique goals of the insurance company.
Furthermore, insurance pricing is more fluid and is known to change continuously. This is mainly to take into account changes that occur regularly.
You live in a high crime area
All areas of the city you live in are not the same. Some are known to have higher crime rates. In such a case, you end up paying a higher insurance premium as you’re more likely to incur damage to your home. Insurance providers collect internal data on the claims paid out for theft, vandalism, and burglary in each area. This helps them assign rates to zip codes accordingly.
To reduce your insurance premiums, invest in security systems for your home. CCTV systems and alarms can help you become eligible for discounts.
Those living in an area with a harsh climate, it’s common to have to pay higher premiums. Such homeowners regularly file for claims due to weather damage and present a greater risk for the insurance provider.
If you’re based in Indian Orchard, MA, there is no better group of home insurance providers and consultants than Western Mass Auto Insurance. We have been part of the industry since 2014 and have worked with countless home and automobile owners. Get in touch with us at (413) 543-3800 for more assistance.

Leave a Reply