So you just received your home insurance renewal and noticed that your premium increased. Your first question is, naturally, "Why?"
Honestly, there are many reasons why a home insurance premium increases. We've listed the most common ones below- chances are good you'll find the reason below. And if you don't, you'll have the right information to start asking questions about your own policy.
1. Your insurance company raised their premiums
When you pay your home insurance premium, it gets lumped in with other people paying their premiums. When claims are paid out, they're paid from those same premiums. So if Joe Smith has a claim, premiums you've paid help Joe Smith fix his house or pay medical bills for someone who got injured on his property (an oversimplification, but you get the point). Insurance companies keep a minimum amount of premium in reserve for claims payments (often state law requires this). When the amount dips below the minimum, the insurance company raises premiums across the board to replenish the amount.
Most state insurance departments also require justification and must approve a rate increase from the insurance company. So although it may look like the insurance company suddenly decided to raise rates for no reason, that's usually not the case.
2. You have an inflation guard endorsement which increases the amount of coverage on your house every year
So most home insurance policies insure a home at replacement cost, which is the cost to repair or replace a home at today's costs. Since the costs associated with repair or rebuilding can change from year to year (most often going UP), many home insurance policies include an "inflation guard" that increases the amount of coverage on the house by a set percentage, like 2%. So at each renewal, the amount of house coverage increases by 2%, the premium may also increase by the same amount.
3. You had a claim (or two) and a claims surcharge has been added
Each insurance company has guidelines as to when and by how much a premium will increase based on a claim. It may only take one claim, regardless of paid amount OR maybe the claim has to be above a certain dollar amount. In any case, once the qualifications are met, the insurance company can increase the premium by a certain percentage at your renewal. When in doubt, ask, as it may not be listed on the policy that a claim surcharge has been added. For additional helpful information concerning homeowners insurance claims, read our article "How Do Ohio homeowners insurance claims work?"
4. You lost a discount
Most policies have several discounts included and if those discounts expire, your rate may increase. If you’re receiving a discount for being claim free, then have a claim, the loss of the discount will increase your rate. Maybe you were receiving a discount for having your policy on EFT and you changed your payment plan. You might see a slight increase here too. Maybe you were receiving the multi-policy discount and you cancelled your auto policy. The point is, there are many possible reasons for losing discounts. So ask if that might be the reason.
5. Your insurance score changed
Since 2003, the Ohio Department of Insurance has allowed the use of insurance scoring in rating auto and home insurance policies. An insurance score depends heavily on credit information. Although each insurance company uses its own insurance scoring model, some of the biggest factors that affect your score include:
- Bankruptcy, foreclosure, repossession
- Payment history- late payments, missed payments
- Length of credit history
- Number of credit lines
- Type of credit
- Outstanding debt
- Inquiries into your credit history
If your credit history suddenly changes for the worse, then you will probably see a premium increase. For more detail concerning how and why insurance companies use credit history in premium determination (along with helpful tips to improve your score), read "What You Need to Know About Insurance Credit Scoring" from the Ohio Department of Insurance.
6. You made a change to your policy sometime during the policy period and are just now seeing the FULL impact
This one really messes people up, but it happens all the time. And let's face it, something we did 6 months ago is harder to remember than something we did last week. Here's an example: Let's say your policy runs from June 1- May 31. Maybe you added some jewelry or increased the amount of the home coverage on November 1. You're only charged premium from the date of the change until May 31, the end of the policy period. That's called pro-rata premium. But when you get your renewal for the following June 1, naturally you're going to see a higher premium, because you're now seeing premium for the ENTIRE policy period. So it may look like your policy premium went up significantly, when in reality you only paid premium for the portion of the policy period and at renewal you see the full impact of the change.
7. The company made a mistake
I know right? But, honestly I have seen it happen. In fact the most common mistake we see is the removal of the auto/home discount. The only vehicle is sold, and the auto policy is cancelled. A few months later, the insured buys a different car, and another auto policy is written, but the system doesn't catch the new policy. So, yes it happens! And this discount can often range between 15 and 20 percent, so you would definitely notice that change!
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