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There are many variables insurers consider when setting your insurance rate. Here are five major factors: 1) Claims history. Claims history has been a determining factor for setting insurance rates. Historically, the fewer claims you have the lower your insurance rate. Advances in computer technology have allowed claims information to be stored more efficiently in computer databases. There are two main databases insurers use:
These reports list your personal claims history and the claims history of your home for the previous 5 years. Each insurer decides how to use this information based on its own underwriting and rating criteria. For example, one company might issue a standard homeowners policy to a homeowner whose home has had two water damage claims in the last 5 years. Another company, though, might place this homeowner in a higher risk pool with more expensive rates, while another might not insure the home because they consider the homeowner a high risk. Under the Fair Credit Reporting Act, you have a right to see and correct information on your claims history reports. If you have been denied insurance or were charged a higher premium, contact ChoicePoint or ISO within 60 days of your denial to request a free report. Otherwise, you will be charged a small fee for your claims history report. 2) Credit rating. Most insurers also use credit history as a factor to set rates. Studies have shown that individuals who have good financial habits are generally more responsible in other areas of their lives and therefore file fewer claims. Insurers are interested in how you handle your finances, not whether you qualify for credit, so different formulas are used to calculate insurance scores than are used to determine your creditworthiness by a lending institution. You can improve your credit rating by:
Under the Fair Credit Reporting Act, you have the right to order your credit report and correct any erroneous information. If you have been denied a loan or other credit opportunity, you are entitled to a free credit report as long as you request it within 60 days of being declined. Otherwise you will be charged a fee for the report. There are three main credit reporting agencies: Equifax Experian TransUnion 3) Home maintenance. You can avoid unnecessary and costly claims by inspecting your home, taking preventive action and making necessary repairs. The fewer claims you have the better risk you are for your insurer. As a result, you will likely be rewarded with lower premiums. See the "Home Maintenance" section. 4) Home construction. Because of its resistance to fire, brick and masonry homes usually cost less to insure, unless they are in an earthquake-prone area. In addition to the materials used to build your home, there are other construction factors to consider, including the cost of building materials, labor and any improvements you have made to make your home more resistant to natural disasters likely to occur in your region. 5) Your location. The location of your home and its likelihood of being damaged by certain natural disasters also can affect your homeowners rate. As mentioned earlier, a brick or masonry home would probably get a favorable insurance rate on the East Coast or along the Gulf Coast, because it would be able to withstand a hurricane better than wood; this does not apply to the West Coast, where brick and masonry do not hold up as well as wood during an earthquake. |