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How Home Insurance Prices Are Calculated

Aug. 13, 2021
3 mins
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In this section, you’ll find out how insurance companies calculate premiums, how to keep your rates as low as possible, and how to take advantage of insurance discounts.

Calculating how much insurance you need to pay is a bit like completing a giant jigsaw puzzle. You see, insurance companies use several factors to determine your rate. Learn how each of these factors affects your final home insurance premium.

Where you live

Where you live makes a difference in your home insurance rates. Insurers gather claims experience based on geographical location and adjust their premiums accordingly. So, if you live in an area that has a high number of thefts or crimes, you will pay higher insurance rates than if you lived in a low-theft area.

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How much coverage you have

The more coverage you purchase, the higher your premium costs. A $20,000 tenant insurance policy, for example, is less expensive than a $30,000 tenant insurance policy. You may choose to increase your coverage based on the value of your belongings. If something were to happen, say a fire, you would want to have adequate coverage to replace not just your everyday essentials but also your technology, hobby gear, and other items.

For home insurance, the age of your dwelling may increase your premium. For example, century homes may come at a greater risk to an insurer as they often have older wiring and plumbing.

Type of coverage

A tenant insurance policy will be less expensive than a condo insurance policy. Why? Because your insurer has a greater exposure to cover for a condominium owner than for a tenant. For example, a condo policy covers any upgrades to the owner’s unit, such as granite countertops, as well as items like appliances. In a rental unit, the appliances belong to the owner and do not count as tenant possessions.

Moreover, if you customize your policy with optional coverages, plan to pay a higher premium. Suppose you insure your engagement ring; you’ll want to cover the total replacement value. You may be able to add an insurance rider for other expensive personal property like bikes, musical instruments, sports equipment, and memorabilia.

Proximity to a fire hydrant or fire station

It’s an advantage to live close to a fire hydrant or fire station. The closer you are, the greater the chance your property can be saved if a fire starts. However, those living in remote areas may see higher premiums.

Amount of your deductible

A standard policy deductible might be $500. If you choose a higher deductible (the amount you pay on a claim), your insurance company will reduce your premiums.

However, you will owe more money out of your pocket if you must file a claim. Suppose you suffer damage to your home covered by your policy, and the loss is $6,000, and your deductible is $1,000, your insurance company will pay $5,000 after you pay the deductible.

Security features

It’s to your advantage to have a safe home environment. If you install an alarm system or other security features in your home, your insurance company may offer discounts to reduce your premium.

The information contained within this article is subject to change. Always speak with your current insurance supplier, or a licensed insurance representative, to answer your specific questions. The information collected and compiled here is intended to act as a guide.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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