Why Homeowners Insurance Premiums Go Up

Insurers often view a history of claims as an indicator of future risks. Therefore, if you've filed several claims previously, insurance companies might consider you more likely to make future claims, which can lead to increased premiums.

Many insurance companies in certain states consider your credit score when setting premiums, excluding policyholders in California, Hawaii, Maryland and Massachusetts. A decrease in your credit score can be interpreted as an increased financial risk, leading insurers to raise your premiums to mitigate this perceived risk.

For instance, an average home insurance policy with $250,000 in dwelling coverage costs $1,979 annually for someone with good credit, but the same policy with bad credit may cost $2,948 per year, an increase of $969.

Renovations or major improvements can significantly raise the value of your home. This increase in value can lead to higher insurance premiums, as you may need more coverage to rebuild or repair your home in the event of damage.

As the costs of building materials and labor rise, so does the cost of rebuilding a house. In turn, insurance companies adjust premiums to reflect these increased costs, which may be why your homeowners insurance premiums go up. Insurers do this to cover the higher expenses of home reconstruction after a loss.

Living in areas prone to natural disasters like floods, wildfires or earthquakes naturally carries higher risks and is one of the key reasons your homeowners insurance goes up. For example, frequent natural disasters are one of the main reasons why homeowners insurance in Florida is so expensive. If the likelihood of these events increases or if new risks emerge, insurers may raise premiums to account for the heightened potential for claims.

Older homes often pose more risks due to outdated construction methods and materials and the potential need for more frequent maintenance. Insurers might charge higher premiums for these homes to account for the increased likelihood of claims stemming from these issues.

Insurance companies adjust premiums based on their overall loss experience. If they have incurred significant losses from numerous or costly claims, they may raise rates for all policyholders to recover these losses and maintain financial stability.

Changes in coverage can significantly impact your home insurance premiums. Increasing coverage limits to protect more valuable property or adding endorsements for specific risks can lead to higher premiums. Conversely, reducing coverage might lower your costs but leave you vulnerable to larger out-of-pocket expenses if you need to make a claim.

Dwelling coverage is a crucial factor in determining your home insurance premium. This part of your policy covers the cost to repair or rebuild your home if it is damaged or destroyed by a covered peril. The amount of dwelling coverage you select directly influences your premium, with higher coverage limits resulting in higher costs.

For example, the average annual cost for homeowners insurance with $250,000 in dwelling coverage is around $2,614. However, if you increase your dwelling coverage to $1 million, the annual premium jumps to approximately $7,497.