Home insurance premiums are not arbitrary.
Actuarial science has been around a long time, and it has worked out quite well for insurance companies, thank you very much. There is a formula for determining home insurance premiums based on that science, but there are a few items that can increase or decrease the rate you get.
Here are nine things that may affect your home insurance premium:
1. Location
On average, homeowners in Ontario and the Atlantic provinces paid the most for insurance in Canada, at an average of $1,284 a year, according to a 2018 report from consumer research firm J.D. Power. Quebecers, though they had the highest increase, still paid the least, at an average of $960. Western provinces averaged about $1,200.
But insurers also break down the likelihood of claims by neighbourhood, using postal codes. The higher the incidence of crime or vandalism, the more likely the claim, and the higher the premium.
2. Your Home’s Value
The more your home is worth, the more it costs to insure. It’s calculated on your home’s replacement cost, including materials, labour, and disruption.
3. The Age of Your Dwelling
The age of your home plays into your premium equation in many ways. An older home could be more vulnerable to structural weaknesses. Depending on the age, there is also the likelihood of a plumbing failure (bad) or electrical failure (potentially catastrophic) to be considered. Be prepared to demonstrate that plumbing and wiring have been updated to current standards.
Roofing, especially in Alberta, where harsh winters bring high winds and hail, is also more vulnerable on older houses. Remember that damage that is a result of poor maintenance will not be covered. You’re buying an insurance policy, not a home maintenance plan.
4. Swimming Pools and Hot Tubs
A swimming pool or hot tub increases your exposure to liability from injury or, heaven forbid, drowning. You’ll want to increase your liability coverage. Also, such amenities increase the value of your home — a double whammy. There are many precautions you can take to prevent an incident, but pools can be considered an “attractive nuisance,” meaning that you could be liable even for injuries to trespassers. Fences that cannot be climbed and appropriate warning signage can reduce your exposure, but likely not your premiums.
5. How Close Your Home Is to a Fire Hydrant
It isn’t just your dog that loves fire hydrants. Insurance companies do, as well. The distance from your house to the nearest hydrant factors into your premiums, as does the distance to the nearest firehouse and police station. It’s not a big issue in urban environments, but in more rural settings, it could be a factor.
6. The Risk of Flooding in Your Neighbourhood
Spring brings many challenges to Canadian homeowners — clearing out the clutter, sprucing up the garden, and flooding from spring runoff. Water can damage foundations, cause sewer backups into basements, and cause damage to appliances and wiring. A water damage rider on your policy may cover the damage. If your home is in a known flood plain, however, it may be expensive and difficult, even impossible, to get flood insurance.
7. Natural Disasters and Climate Change
In 2017, the Insurance Bureau of Canada reported: “Our changing climate is creating more weather extremes – more rain, more heat, more drought, more wind. In Canada and around the world, climate change is not a future threat but a present danger.” Insurance companies pay out about $1 billion for catastrophic losses in Canada each year — a trend that’s on the rise. Climate change and severe weather events are an increasing threat.
8. Your Credit Score
We’re entering a regulatory patchwork in Canada. In Ontario and Newfoundland and Labrador, there is an outright ban on insurers accessing your credit score. In Alberta, explicit consent is required. But when it comes to home insurance, it’s a different ball game. Only Newfoundland and Labrador prevents insurers from using your credit score against you for homeowners’ insurance. Some insurers, like SGI Canada, may offer a discount if you let them examine your credit-based insurance score. That is not the score used to predict the likelihood of defaulting on a loan, but the likelihood of your filing a claim.
9. Your Claims History
Just like auto insurance, your history of claims factors into the home insurance premium you pay. Your history of claims from a previous residence is also used to determine your premium when you move to a new home. Is it worthwhile to bite the bullet and pay out of pocket for minor damages instead of filing a claim? It may be worth considering.
