Why Are Homeowners Insurance Premiums So High?


By Russ Stanton
A little background………………..
For decades the “1943 New York Fire Policy” was the industry standard. The policy consisted of 2 pages, contained 165 lines of text and covered just 3 perils (fire, lightning and removal). For an additional premium “extended coverage perils” could be purchased adding 6 additional perils (wind, explosion, smoke, riot, aircraft and vehicle damage), vandalism coverage could also be purchased. To this day it remains the basic core of all property insurance policies!
The homeowner’s policy was developed in the 1950’s to “package” various coverages previously written under separate policies. Coverage included the basic perils (stated above) plus additional perils such as theft, vandalism, vehicle damage etc. and Liability coverage.
Over the years, homeowners policies have evolved into so-called “All Risk” policies and thus could lead one to expect coverage for almost anything that could happen. (Based on one company’s TV commercial you might think “Mayhem” is a covered peril ….but its not!)
According to some pundits, the public ‘s mindset has slowly evolved to the point where some insureds now view their insurance policy as a “maintenance agreement” as opposed to the policy intent as an indemnification agreement for fortuitous, sudden and accidental loss caused by the perils covered (or those perils not excluded) by the policy.
In these cases the practice has resulted in payment of losses that the premium rates did not contemplate, thus contributing to rate increases. This trend has been reversing in recent years because insurance companies have found it extremely challenging to pay “maintenance” claims and still keep premiums affordable.
What can you do to keep your premium reasonable?
Maintain your property. How a home is maintained says volumes about the owner and is a major factor in determining the premium. (An updated and well maintained older home will have a better rate than a newer home in disrepair).
Carry the highest deductible you can reasonably handle and avoid making claims for minor damage (small claims affect premiums just as large claims do). Use the premium savings from the higher deductible to create a “rainy day fund” to pay for a small loss. Also, if you have an older home ask about” Functional Replacement Cost” coverage.
Check your credit score. Insurance companies use a “cousin” of financial credit scores called “insurance scores” Chances are, if you have a good credit score you will also have a good insurance score.
Review your policy with your agent and ask that they quote your home and auto coverage with the same company. This usually (but not always) results in overall lower insurance costs. Also inquire about discounts that you might be eligible for such as: new roof, paid in full, fire, smoke and burglar alarms, group discounts, non-smoker discounts etc.

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