Why do home insurance premiums increase? The quick answer to this question is increased risk. It means the prevailing conditions are more unfriendly than was projected when the insurance was taken. Insurance premiums are pegged on various factors. A change in any of these could trigger higher premiums when your policy comes up for renewal.
Before you take out a home insurance policy, do your research to establish which combination is suited for your home. As a rule, get an insurance broker to explain the different policies. Understand what your home insurance policy covers. Don’t run with the cheapest insurance quote as it could turn out to be the most expensive once the policy comes up for renewal.
The last thing you want is to rush to sign a home insurance policy only to realize your home is underinsured a year later. A rise in home insurance premiums could be caused by factors outside your control.
Here are seven reasons on why do home insurance premiums increase:
1. Your Home Is Undervalued
If your current insurance is undervalued, you can bet it will rise once it comes up for renewal. Your insurance premium will be adjusted upwards once the actual value of your home is calculated.
2. Expanded Coverage
Expanded coverage is another reason on why do home insurance premiums increase. Your insurance premiums may also rise if the coverage need has expanded. This happens when you decide to cover more than was initially agreed.
3. Inadequate Coverage
The premiums may also rise if the owner didn’t cover their home adequately. The next insurance cycle will pick up the slack by adjusting the premiums upwards. Some policies only cover your home’s current mortgage balance. Others just cover the fair market value of the home. None of these options is adequate. One protects the interests of the bank while the other doesn’t cover the costs of rebuilding a home.
Be cautious about low insurance premiums. When looking to buy insurance, make sure it covers all your home insurance needs. The cheap premiums that made you sign up with one insurance firm can only mean one thing: your home is underinsured. As renewal time approaches, you want to make sure your home is correctly insured. The spike in premiums will, therefore, not reflect an actual change in the value for your home, but an adjustment on the back of underinsurance in the previous cycle.
4. Expensive Renovations
Should you decide to renovate your home to improve its value, expect to pay higher insurance premiums in the next insurance cycle. Rising material and labour costs drive up the cost of renovating your home, which could make it more expensive than the current market value. All these dynamics could trigger high insurance premiums, not because of any fundamental change, but because one desires, or needs, more insurance.
If the renovations are substantial, insurance premiums likely will be too. While a home remodel is exciting, the next policy renewal will reflect the changed circumstances.
5. Tax Assessment
If after a tax assessment your home’s taxable value jumps, so will the insurance premiums upon renewal. While assessments are not the same as the sale price of a home, they play a critical role when establishing a property’s fair market value. The increase in premiums could be sharp if it has been a while since your home was last assessed.
6. Your Home’s Value Has Gone Up
It’s always a great thing when a home appreciates in value. In most cases, your home will be worth more dollars a few years down the road than when it was first sold to you. Sometimes the appreciation can be so sharp that, upon policy renewal, adjustments are necessary. This is a situation where good news in property appreciation spells bad news in insurance premiums.
7. Changed Climatic Conditions
Home insurance premiums are affected by the elements. If you are living in an area that has suddenly become prone to harsh climatic conditions, the insurance companies will seek to protect themselves by raising premiums. Again, this increase is not commensurate with an increase in the value of your home. Rather, it is a reflection of changed risk factors that were earlier not factored in.
Extreme climate change-induced weather events are majors causes of spikes in insurance premiums. These include disasters such as tornadoes, hurricanes, earthquakes, tsunamis, among other natural disasters outside your control. As homes are destroyed by these disasters, the volume of claims rise. To protect themselves, home insurers raise their premiums to cover the claims.
After doing due diligence and taking out the right insurance for your home, your home’s insurance premiums may still rise due to other reasons beyond your control. Among these are climate-induced disasters that lead to a rise in claims. Others include an appreciation in the value of your home (which is in itself a good thing), remodels that improve your home, raising its value and tax assessments that adjust the value of your home.
To get the right policy for your home, be responsible in the way you search for a home insurance policy. Establish the extent of coverage of your home needs and then compare several policies. The best is one that meets your coverage needs at the most competitive price. To help you compare policies, consider hiring an independent broker. Since they understand the difference between the various policy options, they can recommend the ideal one for your home.