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Insurance is based on the principle of pooling the funds of many clients into a big pot in order to compensate the losses suffered by a few. Insurance premium calculations are based on the likelihood of insured losses and how often these will occur.
To determine home insurance rates, we analyze your lifestyle and all your needs, then set the premium amount based on the value of your property and its contents as well as on your past claim history. We take into account the many variables that make you different from all other homeowners.
The premium you pay depends on many factors. Here are a few steps you can take to better protect yourself and your residence, while also lowering your home insurance premium:
1. Evaluate your protection needs every year
Home insurance protection should reflect your home’s current value and condition and take into account all the major home-related improvements and purchases you’ve made.
2. Take steps to prevent fire, theft and water damage
Preventive steps include installing an alarm system, water detectors, a backflow valve on the main water line and tankless water heaters, and regularly maintaining your electrical, plumbing and heating systems as well as the roof.
3. Inquire whether you might be eligible for other discounts
Ask your insurance broker whether you are eligible for additional discounts, such as those that apply if your home is mortgage-free or if you’ve never submitted a claim.
4. Get your vehicle and home insurance from the same insurer
5. Don’t change your insurer before your policy has expired
This will avoid early-termination penalties.
6. Pay your premium annually
Paying your premium annually instead of monthly avoids management or interest charges.
How insurers use your premiums
The premiums collected by insurers are used to compensate clients, pay taxes and other duties, and cover the insurers’ operating costs. Insurers also set aside much of their premium income as a reserve that enables them to respond quickly in the event of disasters triggering many claims at the same time.
Insurers invest the remaining funds not used for their daily operations. These investments are essential since the income they generate enables insurers to cover high compensation costs. In fact, the insurance sector has always produced positive yields from its investments (Insurance Bureau of Canada).
Where your premium payments go
Most insurance policies come with a deductible, that is, the amount you agree to cover when you submit a claim. This amount is deducted from the sum you receive from the insurer to compensate you for your loss. The deductible is thus the share of damages you are responsible for.
You can lower your premium by increasing the deductible. However, it is important to carefully weigh the pros and cons when choosing your deductible. Don’t hesitate to ask advice from your broker in order to identify the deductible amount that best suits your situation.
Factors in setting your home insurance premium
- Where you live. Some residential areas suffer from a higher frequency of theft, other crime, sewer backup and extreme weather events than others, and are therefore subject to higher insurance premiums.
- Distance from the nearest fire station. In urban areas, properties are closer to fire stations, which generally lowers their insurance premiums.
- Amount of protection requested. If you want or request more protection for your home and belongings, your premium will be higher than if you wanted or requested less protection.
- Your home’s age and condition. Premiums are generally lower for recently built homes because the plumbing, electricity and roofing pose less risk and are therefore less susceptible to damage.
- If you live or work at home. Unoccupied properties are more exposed to theft and vandalism. Similarly, if you work at home or have tenants, your premium will be higher because the property contains more items.
- Number of insurance claims filed. The more years without a claim, the larger the premium discount.
- Number of years at the same address. Statistics show that people who live a long time in the same residence make fewer insurance claims, which can lower their home insurance premium.
- Your age. As a general rule, your premium goes down as your age goes up.
- Preventive measures. The installation of systems to prevent theft, fire or water damage can lower your insurance costs by either entitling you to a premium discount or by preventing or reducing incidents of damage or loss, which naturally results in fewer claims.
- If you are the unencumbered owner of your home. If you’re mortgage-free, you have more money to maintain your property, which results in fewer insurance claims and helps lower your premium.
- Your home heating system. When the main source of heating the home is heating oil, there is a higher fire risk, which entails a higher premium.
- If your home was built for or used by more than one family. If your home includes more than one self-contained accommodation unit or if you share the dwelling with people who are not your relatives, this could be considered as a multi-family dwelling. In such cases, the insurance must cover more items with the resulting likelihood of more claims and for higher amounts as well.
Calculating home insurance premiums is no easy matter, as we are well aware! The best way to get a clearer idea is to contact us!