How does the insurance company determine rates?
Replacement Cost
Home Insurance rates are going to vary based mainly on the characteristics of the home. The first thing we do at Alpha/Omega is determine the Replacement Cost Value of your home. By asking a series of questions including year built, square footage, updates to the home, and location; a replacement cost estimator will determine the cost to rebuild your home, which will be the cost you will need to insure your home for. Often confused with Market Value, the replacement cost does not factor in land value.
Inflation Guard
An often-overlooked factor is the inflation guard built into most policies. An insurance company will automatically increase the home’s dwelling coverage annually to keep up with inflation. The increase in coverage will increase your premium. However, without that guard in place, if you bought your home 20 years ago and insured it for $100,000, you might be in a state of shock if a loss occurs and find it now costs a considerably more amount of money to rebuild your home. On one hand, it is a good thing to have the inflation guard in place. On the other hand, it is a percentage. That percentage compounded over years could force the dwelling coverage to increase faster than the pace of inflation. A good rule of thumb is to review your replacement cost every 5 years or so to make sure the amount makes sense. If you find that you are now over-insured, you can safely lower the dwelling coverage, decreasing your premium
Distance to the Water
Companies can also surcharge for distance to the water. Many people think distance to the water has to do with the likelihood of flooding, but homeowner’s insurance already excludes flooding. The reason for the surcharge on a home close to the water is because the velocity of wind is strongest near the shoreline. A local agent will know which carriers are favorable to those homes close to the water.
Credit Score
It's true. Many carriers will provide a more favorable rate to those with better credit. However, the carrier will typically only pull the credit of the applicant listed first. If there is more than 1 person listed on your policy, considering having the person with the better credit listed first to receive the best rates.
Miscellaneous Surcharges
How close do you live to a fire house? Do you have a pool? A trampoline? A dog? These hot topic items may affect your eligibility with a carrier. A carrier could also put a surcharge on the policy for the added risk exposures.