Home insurance how does it work?

Question

Hello,
My question is, does anyone know how insurance companies decide if an area has a high crime rate? Do they just go by recorded crimes that have had claims through insurance or any recorded crimes regardless?


I have been interested in getting home insurance as my parents don't have it for our house and I have quite a few expensive things I would like to ensure. When I tried getting quotes from some of the big home insurance company websites, the quotes were very high (double the amount my friend got) - He lives near Kings Lynn in a Town, I live near to Stansted Airport in a quiet village with a population of around 250. The crime in the area is non existant. The only thing I can think of that could be causing the higher quote is there is an old lady who lives in a bungalow on the same post code as us who has been burgled 3 times no less whilst she has been in the house. THis has been the only crime in the area for years and years, I am pretty sure she does not have insurance

Answer 1

Home insurance rates are basically made up from the following: Ammount of coverage, type of home to be insured, location of home, claims history, prior insurance, various discounts, what deductible is chosen and your Insurance and Financial Stability (think credit).

Claims frequency in an area is taken into account but not to the degree where a company will differentiate rates on a street by street basis. A wonderfull example of claims frequency making rates higher is a coastal, hurricane prone area vs a town 150 miles inland.

The ammount of coverage is kind of a no brainer, a million dollars in coverage will cost more than a hundred thousand dollar home to insure. Similarly some homes are constructed differently and therefore are cheaper or more expensive to insure.

Not having prior insurance is probably driving your rate upwards and also not qualifying you for other discounts (such as a claim free discount which had you had insurance you may have qualified for if you had no claims). Further, if you've had several claims in the past you obviously be rated higher since you have a tendency to file claims (valid or otherwise).

Also if you have a lower deductible you will have a higher premium and if you have high deductible it will lower your premium.

Lastly, insurance companies do rely on an estimate of your insurance and financial stability into account while rating your policy.

Your best bet will be to sit down with an agent and ask him why your quote seems high.

Hope this helps some.

Answer 2

Insurance companies take all the payouts in a given area and use that information to determine rates. You must also take into account water damage (broken pipes), wind damage, fire damage, and other perils.

Keep in mind most state governments make insurance companies spread rates among the whole state. So even if you live far away from a large city with a lot of crime you might be paying to help keep the insurance costs lower in the city area. If they did not do this people in the city could not afford the insurance.

Answer 3

That's called "redlining", and it's illegal. So they don't do that. These days, they pretty much group houses together by zip code.

Actually, it's likely not THEFT which is causing the higher rates. It's much more likely fire protection class - paid fire department vs. volunteer, number of trucks, hydrants right by the house . . . areas are ALSO assigned protection classes, and the more rural the area, the more likely a total fire loss.

Answer 4

Home insurance, also commonly called hazard insurance or homeowner's insurance. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home.