Why Do Your Homeowners Insurance Premiums Go Up?


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ByMark Fitzpatrick
Edited byRae Osborn
ByMark Fitzpatrick
Edited byRae Osborn

Updated: May 22, 2024

Advertising & Editorial Disclosure

Your homeowners insurance premiums may increase due to various factors such as fluctuations in your credit score, local risk factors like crime or weather patterns or rising construction costs, which make repairs more expensive. Additionally, filing previous claims can signal higher risk, leading to higher premiums.

Even making home improvements, while beneficial, can raise the value of your property, resulting in increased coverage needs and consequently, higher premiums. Understanding why your homeowners insurance premiums go up can help you plan financially when you renewing your policy.

Key Takeaways

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Home insurance premiums can increase due to factors like location risks, construction costs, claims history and credit scores.

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Regularly reviewing and comparing insurance policies can help manage and potentially lower your home insurance costs.

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No single factor dominates in determining insurance premiums; it's a combination of personal, local and market-wide influences.

Why Home Insurance Premiums Go Up

Several key factors play a role in why home insurance premiums increase, such as changes in your credit score and previous claims. The risk profile of your location also matters; if your area becomes more prone to crimes or natural disasters, insurers might adjust rates accordingly. Here are other common factors affecting your home insurance rates:

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    Claims History

    Insurers often view a history of claims as an indicator of future risks. Therefore, if you've filed several claims previously, insurance companies might consider you more likely to make future claims, which can lead to increased premiums.

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    Credit Score Changes

    Many insurance companies in certain states consider your credit score when setting premiums, except for California, Hawaii, Maryland, Massachusetts, Michigan, Nevada, Oregon and Utah. A decrease in your credit score can be interpreted as an increased financial risk, leading insurers to raise your premiums to mitigate this perceived risk.

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    Home Improvement Costs

    Renovations or major improvements can significantly raise the value of your home. This increase in value can lead to higher insurance premiums, as you may need more coverage to rebuild or repair your home in the event of damage.

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    Rising Construction Costs

    As the costs of building materials and labor rise, so does the cost of rebuilding a house. Insurance companies adjust premiums upward to reflect these increased costs, ensuring they can cover the higher expenses of home reconstruction after a loss.

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    Location Risks

    Living in areas prone to natural disasters like floods, wildfires, or earthquakes naturally carries higher risks. If the likelihood of these events increases or if new risks emerge, insurers may raise premiums to account for the heightened potential for claims.

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    Age of Home

    Older homes often pose more risks due to outdated construction methods and materials and the potential need for more frequent maintenance. Insurers might charge higher premiums for these homes to account for the increased likelihood of claims stemming from these issues.

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    Insurance Companies Losses

    Insurance companies adjust premiums based on their overall loss experience. If they have incurred significant losses from numerous or costly claims, they may raise rates for all policyholders to recover these losses and maintain financial stability.

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    Changes in Coverage

    Modifying your insurance policy, such as increasing coverage limits or lowering deductibles, directly affects your risk exposure. These changes can result in higher premiums as the insurer takes on more risk or agrees to cover more costs in the event of a claim.

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    Inflation

    Inflation impacts almost every sector, including insurance. As the general cost of goods and services increases, insurers adjust premiums accordingly to ensure that they can cover the rising costs associated with claims and operational expenses.

While these may be some reasons why home insurance premiums increase, it's important to remember that insurers can adjust rates based on their specific criteria and assessments. Different insurers may weigh factors differently, leading to variations in premium changes. It's always a good idea to review your policy annually and shop around for quotes to ensure you get the best rate for your needs.

What Factors Affect Home Insurance Costs?

As homeowners insurance premiums can fluctuate, understanding the factors that influence these costs is crucial. Awareness of these elements allows you to take control and mitigate factors affecting your insurance rates. Here are vital considerations that typically impact home insurance costs:

  • Location: The geographical area of your home plays a significant role. Areas prone to natural disasters, high crime rates or other risks tend to have higher insurance costs.
  • Home Value and Size: The larger and more valuable your home, the higher the insurance costs, as there's more at stake to protect.
  • Age and Condition of Home: Older homes or those needing repairs might carry higher premiums due to an increased risk of issues.
  • Safety Features and Upgrades: Homes with safety features like burglar alarms or upgraded materials can lower insurance costs.
  • Credit Score: Insurers often consider credit history when determining rates, with better credit potentially leading to lower premiums.
  • Claims History: A history of filing insurance claims can indicate higher risk, leading to increased rates.
  • Type of Coverage and Deductible: The scope of your coverage and the chosen deductible amount will also affect your insurance costs.

By understanding and managing these factors, homeowners can exert some control over their insurance premiums, potentially leading to more favorable rates.

7 Tips to Keep Home Insurance Premiums Down

Keeping home insurance premiums manageable is a priority for many homeowners. While several factors are outside your control, adopting certain practices can help keep your premiums as low as possible. Here are some tips:

1
Increase Your Deductible

Opting for a higher deductible can lower your premium costs, though it means paying more out of pocket in the event of a claim.

2
Improve Home Security

Installing security systems, smoke detectors, and other safety features can reduce the risk of claims, potentially lowering your premiums.

3
Maintain a Good Credit Score

Since insurers often consider credit scores, maintaining a good credit history can positively impact your insurance rates.

4
Ensure Regular Home Maintenance

Keeping your home in good repair can prevent claims and signal to insurers that your property is a lower risk.

5
Bundle Policies

Bundling home insurance with other policies like auto insurance can often qualify you for discounts. The best home and auto insurance bundle is more affordable than buying it separately.

6
Review and Update Your Policy Regularly

Ensure your policy covers only what you need. Over-insuring can lead to unnecessarily high premiums.

7
Shop Around

Regularly compare home insurance quotes from different insurers to find the most competitive rates for your situation.

While these tips are good practices and can help keep your home insurance premiums down, it's important to remember there's no guarantee. Various unique factors, such as your claims history or credit score, may cause your premiums to go up. It's always wise to review your circumstances and consult with insurance professionals to understand the best strategies for your situation.

FAQ

Understanding the nuances of homeowners insurance is vital for making informed decisions about your coverage. One aspect that often raises questions is the fluctuation in insurance premiums. To help clarify this, we’ve compiled some of the most frequently asked questions about why and how insurance premiums might go up.

What does it mean when insurance premiums increase?
Why did my homeowners insurance go up so much?
What factor affects insurance premiums the most?

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About Mark Fitzpatrick


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Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.