Many homeowners insurance companies use risk assessments as part of determining homeowners insurance premiums. There are some of the factors you may be able to change to lower your risk assessment score.
Some variables used in risk assessments are smoking habits, credit rating, home security, size of the mortgage and location of the home. In past years, your credit score was mainly used to determine interest rates on loans. In recent years, it has also been used in other decisions such as insurance premiums, being considered for a job or when renting an apartment. Your smoking habits and having a home security system are a couple of items that determine the safety of your home. If you are a smoker, there may be a higher chance of having a fire in your home than if you are not.
The location of your home is often a factor in determining your premiums. For example, insurance costs are based on higher chances of natural disasters and higher crime rates. In many cases, if you live in an area of frequent flooding, hurricanes, earthquakes and other disasters, you may need additional coverage to your usual homeowner’s insurance. Many people think homeowners insurance will cover damage from flooding, but it does not. You need additional flood insurance to cover damage from flooding or sewer backup.
Each insurance company may have a different risk formula but a simple way of determining how much risk a homeowners insurance policy has is to assign a cost percent weight to each risk factor for a risk profile.
In areas that have frequent disasters such as tornadoes, hurricanes and earthquakes can lower their risk somewhat by reinforcing their homes to withstand these disasters. It may cost money up front to do this, but the expenses may off over the years. By adding these protections may also increase the value of your home, if you end up putting it on the market.
One example of this is if a homeowner in Texas has the risk factor of not having an upgraded roof for tornado protection. The insurance company may assign a 12 percent cost percent risk factor for that risk. Other items that could increase your risk factor are owning dangerous pets, having a swimming pool, a trampoline and other dangerous items. There are many accidents reported annually because of swimming pools, trampolines and pets.
Since the more claims you file will cost the insurance company more money, your risk profile can have an affect on your homeowners insurance rates.