{"id":486,"date":"2021-05-18T21:31:35","date_gmt":"2021-05-18T21:31:35","guid":{"rendered":"https:\/\/app.policyzoom.com\/?page_id=486"},"modified":"2022-03-16T05:59:45","modified_gmt":"2022-03-16T05:59:45","slug":"homeowners-2","status":"publish","type":"page","link":"https:\/\/www.policyzoom.com\/homeowners-2\/","title":{"rendered":"Homeowner’s Insurance Premium"},"content":{"rendered":"\n

Homeowner’s Insurance Premium<\/h2>\n\n\n\n
<\/div>\n\n\n\n

<\/p>\n\n\n\n

Are you a new home buyer wondering how much your homeowners insurance premium will cost you? Or perhaps, you already have homeowners insurance but want to learn how to calculate your homeowner’s premium when trying to obtain a better deal. Either way, you are in the right place, as we will provide you with a comprehensive insight into what a homeowners insurance premium is and how you can calculate it yourself. <\/p>\n\n\n\n

<\/div>\n\n\n\n

What Is a Homeowners Premium<\/h2>\n\n\n\n
<\/div>\n\n\n\n

A homeowner’s insurance premium is the amount of money you are responsible for paying to your insurance company on a monthly basis. This is a payment installment plan for your homeowner’s insurance policy. While most people opt to pay their homeowner’s premium via monthly payments, you can also choose to pay it all in one go. <\/p>\n\n\n\n

Usually, you will pay a lump sum amount of your annual premium at the time of purchasing your homeowner’s insurance policy. In some cases, if your mortgage provider includes homeowners insurance as a component of your mortgage, you would pay your homeowner’s premium with your mortgage payments every month.<\/p>\n\n\n\n

<\/div>\n\n\n\n

Whenever you purchase a homeowners insurance policy, the insurance provider looks at various factors to estimate how much your monthly premium will be . Some of these personal factors include your age, location, size of the property,  marital status, credit score, etc. <\/p>\n\n\n\n

<\/div>\n\n\n\n

However, you should note that some homeowners or homes are considered \u201criskier\u201d than others; therefore, this can affect their homeowner’s premiums. <\/p>\n\n\n\n

For example, those purchasing a brand new home, are considered less of a risk to insure by insurers. On the other hand, those purchasing homes in flood zones or earthquake belts, will be deemed the opposite. The homes would be considered high-risk properties, and as a result you might have to pay a higher premium risk. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Calculating Your Homeowners Premium<\/h2>\n\n\n\n
<\/div>\n\n\n\n

Most homeowners wonder how insurance providers actually determine their homeowner’s insurance premiums. They may ask questions like what factors were used to determine my rates? <\/p>\n\n\n\n

The first thing you must remember is that insurance companies are also a business. Therefore, they have to draw a fine line between offering you a competitive price and not losing money while doing so. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Price is too low, and they will start paying out of their own pocket when you make a claim. Similarly, asking for high premiums will make them lose their customers to other competitors in the market. <\/p>\n\n\n\n

<\/div>\n\n\n\n

This is the most common reason why insurance companies analyze their losses scrupulously. They usually hire rating bureaus to analyze their previous business data. This allows the insurance provider to determine which homeowners and property characteristics are most likely as well as less likely to result in insurance companies having to pay the claims. <\/p>\n\n\n\n

<\/div>\n\n\n\n

That said, there is no universal formula or calculator that you can use to calculate homeowner’s premium. However, certain factors can help you save a considerable amount on your next homeowner’s insurance coverage. <\/p>\n\n\n\n

<\/div>\n\n\n\n

How to Calculate Homeowners Insurance Premium<\/h2>\n\n\n\n
<\/div>\n\n\n\n
\"home<\/figure><\/div>\n\n\n\n

A homeowner’s premium calculation mainly focuses on the location of your home and its level of exposure to risk. Here are the steps that help insurance companies to calculate your homeowner’s premium. <\/p>\n\n\n\n

<\/div>\n\n\n\n

The Categorization Process<\/strong><\/h4>\n\n\n\n

The insurer first divides the loss associated with the homeowners’ category you fall into. They will then determine the losses they typically have to face for your category.<\/p>\n\n\n\n

For example, if in the previous year, the total losses of properties valued at $100,000 were $5,000, then the outcome would be 5%, i.e., five cents per dollar of your property value to cover the losses. This amount is also known as pure premium. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Determining Your Expense Ratio<\/strong><\/h4>\n\n\n\n

Once the insurance company knows the risk of loss, then will calculate their administrative costs and other expenses such as taxes and commissions. Moreover, they also estimate how much profit they will be out of your homeowner’s insurance coverage. This is known as the expense ratio expressed in percentage. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Time to Set Your Monthly Premium<\/strong><\/h4>\n\n\n\n

The homeowner’s premium will be the price that you pay every month. This requires the division of your pure premium by one and subtracting the expenses ratio from it. The remainder will generate your gross premium that you will be liable to pay as a homeowner. <\/p>\n\n\n\n

For example, if the insurance company’s expense ratio is 27.1 percent and your pure premium is 5 cents on each dollar of your property. <\/p>\n\n\n\n

In this case, they are going to divide five cents by one and minus .276, and the answer would be 69 cents for each insured dollar for your property. Therefore, your premium would cost you $690 per year. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Factors that Determine Your Homeowners Premium<\/h2>\n\n\n\n
<\/div>\n\n\n\n

Here is a comprehensive list of factors that a homeowners insurance company will consider when calculating your homeowners’ insurance premium. However, you must note that these factors are ever-changing and a highly guarded secret of the industry. <\/p>\n\n\n\n

<\/div>\n\n\n\n