Make no mistake, your homeowners insurance will likely increase from year to year. The bigger questions are why, and what can you do to minimize the impact? From increases in building costs and changes to your policy to claims and risk, knowing what makes your insurance expensive can help you understand how to keep it affordable.
TL;DR (Too Long; Didn't Read)
While it's not set in stone, it is likely that your insurance will increase each year.
Inflationary clauses in your insurance policy allow for the rising costs of building and associated labor. The cost of building materials such as wood, metal and cement increases each year. Likewise, if the cost of replacing your home increases, chances are your insurance costs will also increase. While that may be good news if you experience a loss, it'll be reflected in your monthly or yearly insurance premiums.
Insurance companies look at the total package when they offer their products to a homeowner. Not only do they look at the property to be insured, they also consider the habits of the person making the insurance payments. Some insurance companies believe that people who are unable to manage their credit are more likely miss insurance payments or make risky choices while living in or maintaining their homes, and greater perceived risk always translates into higher insurance premiums.
Additions and Upgrades
If you add square footage to your home or upgrades like turning an unfinished basement into living space, the value of the property increases and your yearly premium will go up. Similarly, adding a pool or other recreational items will cost you more from year to year. Therefore, the impact of increased insurance costs should be considered before you make changes to your home.
Although you pay for insurance to cover you in case of a loss, filing claims can result in higher insurance premiums. The bottom line is that an insurance company exists to make money and if they’re paying out money to cover claims, they’ll increase rates to cover those costs. Therefore, a prudent homeowner should carefully consider all options before making a claim.
Risk comes in many packages. If you live in a neighborhood with a high crime rate, for instance, that represents risk to an insurance company. The frequency of natural disasters like flooding or earthquakes present risk.
The fact that your property is aging every year brings increased risk. Even owning an animal that is perceived to be dangerous or engaging in certain types of activity on your property may signal risk to your insurance carrier. In turn, if the risk of insuring your property goes up each year, expect your insurance rates to go up, as well.
Terry Mulligan has been writing since 2007. As an accomplished artist, decorator and business professional, she enjoys covering art, decor, business management, real estate, education, computers/software/ERP, animal rescue, cooking and self-improvement. Mulligan holds an M.B.A. from the University of Phoenix.