Understanding What Affects the Cost of Insurance
The premiums charged for homeowners and tenants insurance vary widely from company to company. Consumers should shop around in order to get the best value.
The cost of homeowners and tenants insurance depends on a number of factors including:
- location, age and type of building
- use of building (residence and/or commercial)
- proximity of fire protection services
- choice of deductibles
- availability of any premium discounts
- scope and amount of insurance coverage
For example, a brick building is more resistant to fire than a wood frame building and, consequently, costs less to insure against fire. A building’s location also has a bearing on the cost of fire coverage, because some communities have better fire protection than others. In addition, a home located in a community having a higher incidence of crime and vandalism also affects the cost of insurance.
Each of New York City’s five boroughs constitutes a separate rating territory for homeowners insurance but have one protection classification. Outside of the five NYC boroughs companies assign territories based on their own individual experience and assign protection classification factors based on the level of fire protection in the area.
Based upon their underwriting guidelines, insurers assign insureds to rating "tiers" with others who have similar characteristics. Some insurers use “multi-tier” rating programs, in which more than one rate level is established for insureds within the same company. Upon the end of the three year policy period, policyholders may be re-evaluated to determine if they qualify to move to a different tier.
Insurers also may use a consumer’s credit information to decide whether to issue a policy and how to price it, but these insurers must follow Federal and New York State laws, which generally require in part that:
- If an insurer uses credit information in the initial rating of a policy, they must send you a notice disclosing this fact, including the name of the credit reporting agency or agencies that provided the information;
- If your premium is more expensive than it would be if you had a higher credit score, you must receive a notice advising you of this and explaining the factors that affected your score;
- An insurer must disclose that you have the right, if you find an error in your credit report, to contact the credit reporting agency to correct it, and inform your insurer or agent of the correction; the correction may entitle you to a refund and reduction in premium;
- Upon your request, your insurer must review your current credit information at least once every 3 years. If your credit information shows improvement, the company must make any necessary adjustments, which may result in a lower premium;
- A company may not terminate a policy or increase a renewal premium based upon changes in credit information.
Consumers should check their credit reports regularly. If you find an error in your credit report, contact the credit reporting agency to correct it. If you have a homeowners or tenants, condominium or cooperative policy, inform your insurer or agent of the correction, as it may affect your premium and entitle you to a refund and reduction in premium.
A deductible is the amount of loss that must be borne by you before you are eligible for an insurance payment. If your policy contains a standard all-peril deductible, such as $250, you would receive from your insurer the amount of any covered property loss, less $250. The higher the deductible, the lower the premium cost of your policy, because you are essentially “self-ensuring” for losses up to the amount of the deductible.
In choosing your deductible amount, you bear the burden of loss up to the amount you feel you can afford. Contact your insurance company to inquire about higher deductibles options, such as $500 and $1,000.
An insurance company may offer a premium discount if you install devices in your home that minimize losses or deter them, like dead bolt locks, smoke alarms, fire extinguishers, sprinkler and security systems. Insurers are required to offer premium discounts if a policyholder has installed hurricane/storm shutters, or hurricane resistant laminated glass windows and doors on all exterior wall openings, as long as they meet prescribed minimum standards and are installed in accordance with the manufacturer’s specifications.
Check with your insurance company to see if you are eligible for any premium discounts they may offer. Further, some companies offer what is called a multi-policy discount: if you purchase both your homeowners and automobile liability policies from the same insurer, you may receive a small discount.