How do homeowners insurance companies assess the riskiness of a policy?

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Asked March 19, 2012

1 Answer


All insurance is based on risk assessment, including insurance for your home. An insurance company looks at the risks associated with your house, your credit, and other factors to determine what your rates need to be to account for those risks. Here are a few examples of the types of risk associated with your home insurance policy, and how you can keep the risks, and the costs as low as possible.

The first place where risk becomes a factor is with your personal information. Your credit score indicates a level of risk to insurance companies, with a score of 650 or higher indicating low-risk and the amount of risk increases as the credit score goes down. This is the financial risk aspect of the policy, and it relates to your potential to default on your insurance premiums. In short, lower credit scores mean higher premiums.

The next risk factor is related to insurance claims you have filed in the past, and it is dependent on your Comprehensive Loss Underwriters Exchange report, called a CLUE report for short. Your CLUE insurance report contains information about the dates and amounts of any liability claims you have filed, and allows a potential insurer to determine how likely you will be to file claims against the new policy. The more activity your CLUE report reflects, the higher your premiums will be, and the harder it will be to find an insurance company willing to cover you.

The home itself will contain some risk factors as well. If the home is located in a high crime location, you will have to pay higher premiums. Having a pool also means paying higher rates. Other home-specific factors which affect your risk, and therefore your rates, include whether the home has a security system, deadbolt locks, or a fence around the property. Each time you add security, it reduces risk, so a home with a monitored security system is less expensive to insure than one without any sort of alarm.

Other risk factors include the likelihood of the home being affected by a natural disaster. If the home is located in an area which experiences frequent, severe storms, for example, the basic rates of all area homeowners will be higher. This does not include disasters that must be specifically insured against, such as earthquakes or flooding. Those perils are not covered at all by a standard policy, and the risk associated with them is confined to policies written expressly to cover these catastrophes.

How to get cheaper home insurance.

Answered March 19, 2012 by Anonymous

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