What is a home insurance score?

As informed consumers, most of us shop for home insurance exactly as we do for automobiles, refrigerators, or heating systems. The initial cost is important, as is maintenance and upkeep costs.

With insurance, part of the ‘maintenance’ cost is investing the time to keep coverage current, know about rating formulas, and staying abreast of the current financial status of your insurance company.

The final cost is important, so, too, is the condition of the coverage you purchase. Will it perform the job of protecting you as you intend?

Always compare quotes before making any decisions. Use our FREE search tool above to get started!

Keeping Coverage Current

Examine the various aspects of your insurance coverage on a yearly basis to make sure amounts are current. Look at the amount of coverage carried on the building to make sure it meets the coinsurance requirement of 80% to value.

There are a number of insurance calculators that will help you verify the replacement cost of your home. One of them is Building-Cost. Net, but a home inspection or an estimate from your insurance agent will suffice.

Building costs increase with inflation and with the development of new codes in construction. Failure to increase your insurance can lead to difficulties in the event of a loss.

Replacement Cost vs. Actual Cash Value

Consider whether your insurance coverage is based upon replacement cost or actual cash value. You need to know the difference:

• Replacement cost – the cost to rebuild your home and repair damages with materials of similar kind and quality. This protects you against increases in costs for building. Recognize too, that this means you must insure the property up to 80% of its value.
• Actual cash value – pays the value of the home considering age, wear, and tear. This may or may not pay enough to completely repair or replace the damage.

If replacement cost coverage purchased, it will be clearly stated in the provisions of the policy, so it is well worth taking the time to read the documents attached to your insurance policy.

Examine Your Deductible

Look at the deductible you currently have on your insurance policy.

You may want to examine potential claims you have had in the previous years to determine if you could reasonably increase the deductible.

A higher deductible could save money on premiums.

Look at the Perils Covered

Perils are the insurance term for the risk or reason for a loss. Examine the perils for which your home is covered to determine if these are the ones needed in your area. You may wish to consider purchasing flood insurance.

Information about the Federal Program for flood insurance may be obtained from FloodSmart, a specialized website offered by the government. Do not just assume that your home is not prone to floods.

Check the local flood-plain map to be sure that your home is not susceptible to flood damage because flood insurance is not offered in a home insurance policy.

Earthquake coverage is like flood insurance, it is not covered under the home insurance policy. A local agent can inform you about this insurance and sell it to you.

Know about Insurance Ratings

Insurance rates are set, of course, but the insurance companies, but they are highly dependent upon the loss experiences of the particular insurance company within your state.

State regulators oversee insurance rates to make certain that the rates are based upon statistical data rather than speculation.

Your state has a Division of Insurance to oversee ratings as well as licensing of insurance companies and agents.

You can find their website by consulting with the National Association of Insurance Commissioners (NAIC) site and then clicking on your state’s link.

Otherwise, you may spend a great deal of time attempting to decipher the name of the agency for your state.

Basis for Rating Home Insurance Policies:

There are a number of criteria that insurance companies use to determine rates for home insurance policies:

• Type of construction – brick houses cost less to insure than frame homes. The three little pigs were correct.
• Age of the house – older houses often do not have up-to-date heating, air-conditioning, plumbing, and electrical systems. This can cause fire hazards.
• Style of roof – shake shingles burn more readily than do asphalt tile or composition roofs.
• Fire protection where the home is located. Distance from a fire hydrant and the quality of your fire department.
• Amount of coverage – obviously, the more coverage you have, the more expensive your insurance will be.
• Size of your deductible makes a difference. Ordinarily a larger deductible pays off in credits as the policy is rated.
• Your credit score – Insurance companies correlate a good credit score with fewer claims, so they use your credit score as a modifier for your insurance rates.

Home Insurance Credit Scores

Home insurance credit scores are closely related to the credit scores developed by credit companies. These scores are dependent upon an amalgam of the following:

• Timely payment of obligations
• Ratio of debt to credit limits – that is, how much you owe as compared to how much you could borrow
• How long you have had credit – if you have a scanty credit history, your score is likely to be lower.
• New credit applications
• The number of credit accounts you have and the source of them

These criterions may increase or decrease your insurance premiums. For a fuller understanding of this topic, you may wish to consult the Federal Trade Commission’s articles about credit and insurance scoring.

Not all states allow the use of credit-based scores to rate automobile and homeowners insurance.

You may have to refer to your state website to determine if this is allowed in your state. Another discussion of this type of rating may be found on the website for the NAIC.

Current Financial Status and Complaint Ratios for Your Insurance Company

Each year you should examine the current financial status as well as the complaint ratios for your insurance companies and those from which you are requesting quotes.

Far fewer insurance companies are having financial troubles than in the past, but it is an excellent idea to examine yours.

Sources for examination of financial ratings and complaint ratios are:

• Your state’s insurance website
• NAIC website
• A. M. Best – Insurance rating service
• Standard and Poor’s rating services

Insurance Premiums

Insurance premiums are a large portion of our monthly budgets. Recognize, however, that you need to be an informed consumer.

As an analogy – a car that breaks down after you have had it on the road is comparable to an insurance policy that does not cover the needed loss when called upon.

Be careful to read, ask questions, and be curious about insurance coverage in your state.

Use our FREE comparison tool below!