Rate factors are risk characteristics that directly influence how much you pay for insurance. Insurance companies use them to calculate how much to charge for the coverage(s) you select. Because some rate factors relate to things you can control, reducing your risk profile may lead to reduced insurance costs
Location The geographic position of your home for insurance purposes is usually identified by your zip code. The Insurance Services Office and insurance companies develop "territories" based on groups of zip codes. Rates associated with territories are based on actuarial loss experience. That means the loss type, frequency, construction replacement cost, and exposure to hazards such as brushfires, windstorms, earthquakes, and floods all affect the historic cost of insurance, which in turn affect the insurance rates for a given territory.
Tip: When buying a home, consider its proximity to potential hazards as described above. Remember that floods are not covered on a conventional homeowner's policy but flood insurance can be purchased through the National Flood Insurance Program.
Replacement Cost The coverage amount for your dwelling is based upon the cost to replace it with a like structure in the event of a total loss. Many insurance companies will want to calculate the current replacement cost of your dwelling before determining the amount of coverage you will need. For this purpose, they will gather information from you on the number of square feet, rooms, heating source, construction type, roofing material, siding, foundations, etc.
Tip: Consult your insurance company to have your replacement cost adjusted every three to five years. Some companies will automatically raise your coverage by an inflation factor if requested. And remember that older homes have custom construction and woodwork, which are more costly to replace in today�s construction market.
Home Construction There are two basic construction classifications for residential homes. Frame structures like brick or stone are more fire resistant, but are more susceptible to earthquake. Cedar or metal roofing material is less desirable than composite roofing materials such as asphalt shingle.
Tip: When purchasing or building a home, consider how the choice of construction materials may affect your insurance rates.
Age of Construction Newer homes generally cost less to insure since they are less susceptible to fire and other hazards than older homes. Many insurers are reluctant to issue policies for homes with old heating and/or cause water damage.
Tip: Updating these systems can add to the value of your home and reduce your insurance rates.
Available Fire Protection Closer proximity to a fire hydrant and a full-time fire department results in better fire protection and leads to lower rates. Your street is assigned a fire protection class, ranging from 1 to 10, with 1 being excellent (less than one minute response from a fire department), and 10 being the worst (greater than 10 minutes response time, volunteer fire department and no fire hydrants).
Type of Policy The more protection the policy provides, the more it costs. An all-risk policy costs more than a basic fire policy, since it covers more perils (such as burglary, lightning, internal explosions, windstorms, hail, and vandalism).
Occupancy Whether or not you use a residence as your primary home or seasonal/vacation home will affect how much you pay for insurance. Be sure to indicate to your insurance provider those dwellings which are not your primary residence.