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How Do Insurers Calculate Home Insurance Premiums?

By February 28, 2023April 12th, 2023No Comments

There are many factors that insurers use to calculate home insurance premiums. Each insurance company can use proprietary formulas to determine how much to charge for homeowner’s insurance coverage.  

Your agent can help you shop for the best combination of value and coverage. Contact Gaudette Insurance Agency in Whitinsville, Grafton, Southborough, Westborough and Shrewsbury, Massachusetts, to get personalized home insurance quotes.  house against blue sky

What’s the Home Insurance Premium Formula? 
Insurance companies use formulas to help them calculate home insurance premiums based on information about your home and your policy.  

An insurer typically categorizes policyholders living in a certain geographic area by risk. They take the total value of insured properties in the area divided by the losses during the previous year to determine the pure premium, which is the amount of money they must charge per dollar of property value to cover losses. As a result, you may pay more for home insurance if you live in an area that recently suffered a natural disaster.  

The insurer then adds the company’s expense ratio, which includes taxes, commissions and administrative costs. Pure premium plus expense ratio produces the gross premium, which is then adjusted based on details about your claims history, the size of the home, the coverage limits you choose, attractive nuisances like a pool or trampoline on the property and other factors.  

What Factors Affect Florida Homeowner’s Insurance Rates? 
While your home’s value is crucial in determining how much you pay for home insurance, your location can play an even more important role.  

Home insurance costs in Florida are on the rise, with homeowners paying some of the highest premiums in the nation. While Florida laws restrict insurers’ ability to raise premiums, inflation, catastrophic claims, rising litigation costs and insurance fraud present serious problems for Florida insurers.   

How to Get Home Insurance In Florida 
Since insurers set rates using proprietary algorithms, your home insurance rates from one company to the next may vary greatly, even if the policy provides identical coverage. Work with your agent to find a reputable company offering appropriate coverage at the best possible rate.  

Contact Gaudette Insurance Agency today to get home insurance that’s right for your situation.  

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.