Home insurance premiums are based on many different factors, and often those factors will cause a rise in premiums when a policy renews. Even if your personal situation hasn’t changed, there still may be details that cause your home insurance rates to rise. Some of the items that can lead to home insurance rates rising may be in your control, but others aren’t.
If you’ve noticed your home insurance rates rising, here’s a detailed look at what might be behind the increase in premiums -- and how you can responsibly keep your rates as low as possible.
Undervalued Home Insurance
One of the most common causes of rising home insurance rates is simply an increase in home value or coverage need. There are a few ways that undervalued home insurance can lead to higher premiums when your policy renews.
First, sometimes homeowners simply don’t have adequate insurance for their home. Certain policies only cover up to a mortgage’s balance on the house, and many policies only cover up to a home’s fair market value. Neither of these is truly sufficient, for the former only protects a bank’s interest in a house and the latter doesn’t cover how much it costs to rebuild a home. In many cases, increasing labour and material costs make rebuilding a home more expensive than what it would sell for on the market.
In these instances, premiums go up not because of any underlying factor that changed but simply because more insurance is needed or desired.
Second, a home’s value will obviously increase if substantial improvements or modifications are made to it. If you remodel or put on an addition, the increase in your home’s value likely won’t be reflected until your policy renews. When it does, there’ll be a premium increase that corresponds to the increase in value.
Third, a tax assessment may lead to higher premiums if the assessment results in a large jump in taxable value. Although assessments aren’t identical to home sales prices, they often are considered when determining fair market value. The impact of a new assessment can be especially substantial if it’s been a long time since your home was most recently assessed.
If your home insurance rates are rising, consider whether your home’s value has gone up since the last policy renewal. Any of the following could explain part or all of the premium increase:
- Your home was underinsured, and you need more insurance now
- You made a substantial addition, remodel, or improvement to your home
- Your neighbourhood’s property values and comparable sale prices are increasing
- Your home was assessed at a higher value than its previous assessment
Climatic Conditions Is Another Factor Affecting Home Insurance Rates
A widespread cause of rising home insurance rates in many areas is climate change. Extreme weather events, including disasters and tragic ones, are occurring more often in many parts of Canada. Hurricanes, tornadoes, tsunamis, earthquakes and other major natural disasters all lead to many sizable claims. As a result, insurers must raise premiums in order to cover the increased payouts that they’re making.
Even if your home hasn’t been affected by an extreme weather event, you may still be paying higher premiums. Climatic conditions have a direct impact on home insurance rates:
- Changing climatic conditions have led to more disastrous weather events
- These events have led to more sizeable claims
- The increase in claims has led to a direct increase in payouts from insurers
- Insurers have to raise home insurance rates to compensate for their increased payouts
What You Should Do
In light of the changing insurance market, it’s especially important now to shop for a home insurance policy in a responsible way. You should determine what your coverage needs are and then compare policies that offer those coverages. The lowest-priced one that meets your needs will give you protection at an affordable price.
An independent broker can help with this entire process. Independent brokers are uniquely positioned to help you compare policy options from many insurance companies that serve your area.
If your home insurance rates are rising, follow these simple steps to get an affordable policy that meets your needs:
- Get in touch with an independent broker who can help you
- Determine what your coverage needs are with the broker’s help
- Request quotes for home insurance policies that meet your coverage needs
- Compare the quotes, and select the most affordable option
Ways You Can Reduce Your Premium
When your home insurance rates rise, there are several ways you might mitigate the increase that comes at renewal time.
One of the most effective ways is to compare different insurers' policy options with an independent broker, as this lets you make sure you’re paying the lowest possible premium for the protection you need.
Most homeowners also qualify for discounts that lower insurance premiums. Depending on your situation, you might be able to get a mortgage-free discount, multi-policy discount, mature homeowner discount, claims-free discount, loyalty discount, or other premium reductions.
You might also get a percent off of your premiums if you install a system that protects your home from damage. Both security systems and systems that prevent water damage may qualify.
Finally, insurance companies will offer lower premiums if you raise your deductible. You’ll take on a little more risk when you do this, but the rate reduction may be worth the added risk if you can afford to pay more out-of-pocket.
To recap, there are several ways you can reduce your home insurance premiums:
- Compare policies with an independent broker
- Check what available discounts that you qualify for
- Install home-protecting systems
- Increase your policy’s deductible
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FAQs About Home Insurance
Is it normal for home insurance to increase every year?
Home insurance rates often increase each year when a policy renews. These increases are due to a variety of factors, some of which you can control and others that you can’t.
How can I lower my home insurance cost?
There are multiple ways you can lower your home insurance cost. One of the best strategies is to compare policies with an independent broker who can show you policy options from multiple insurance companies. You can also check for discounts, install home-protecting systems, and increase your policy’s deductible.