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Calculating Home Insurance Premiums

How are Home Insurance Premiums Calculated?

How Are Your Home Insurance Premiums Calculated?

Protect Your Investment with Home Insurance

Buying a home is no small feat. Common knowledge tells us that buying a house, or your own property, is one of the strongest kinds of investment a person can make to strengthen their financial future. If you’re buying your first home or property, chances are you want to protect your investment. After all, accidents can happen, and even the weather isn’t always predictable.

That’s why home insurance exists. New homeowners need home insurance to safeguard their future prosperity. Home Insurance was made to cover possible financial losses due to events outside our control. If your house burns down, if a storm destroys your roof, or if thieves break in and damage your building, home insurance can cover you.

New home buyers are often required to have home insurance by the institute from which they receive their home loan. The financial institute usually wants you to mitigate as much risk as possible because they want you to pay off your loan. Losing the property would affect your repayments, so too their investment.

Which Insurance Provider is Right for Me?

Not all home insurance is the same. Different insurance providers offer different things. You may get more extensive cover from one provider than from another. Some insurance providers also have higher fees than others, and affordability can influence the package you opt for. Before you choose an insurance provider, it’s wise to get quotes to see what other insurance providers can give you.

Understanding how their monthly premiums are calculated can help you find the best option for you. In the past, applying for home insurance took time. It began with a visit and many questions. Thanks to technological advances, you can now fill in a simple form online and get a quote that is equally accurate!

Things have gone digital, saving you time and effort. Different online quote comparison tools will ask different questions. The information they require reveals what factors influence your monthly premium fee to an extent. Here are a few factors that will influence how much you pay monthly for your home insurance.

Top Factors that Influence How Much You Pay for Home Insurance

    1. The loan amount granted for your property can influence your premium amount.

This is because the loan provider, often the bank, can require that your insurance covers a specific amount to protect their investment.

    1. The value of your home (whether market or replacement value) influences your monthly premiums because it determines how much the insurer needs to pay out if you claim.

The higher the value you are insured for, the higher the premium. A professional evaluator can properly value your home, or you can rely on the bank’s calculations. Make sure you know for which value your home is being insured. It can differ greatly, and you could end up underinsured or paying too much.

For example, According to IOL, ABSA calculates the replacement value of a building based on its size in square meters, building materials, and the cost of labour. The sale price and bond value play no role. This means that if your house is insured for its replacement value, your premium might be lower, but your cover might be insufficient.

    1. The area your house is in can influence your monthly home insurance premiums.

This is because some areas are considered greater risks for crime or weather damage. A great example would be a home built in a tropical, low-lying coastal area. Hypothetically this home would be at greater risk for damage due to storm winds and floods that often accompany cyclones. It would also be at a greater risk for flooding and other damage.

In some areas, flooding is so regular that homes built within a certain demarcated area are required to have measures in place for when floods occur like building homes higher up, using materials that can withstand flooding, and coughing up a higher fee for insurance. In other areas, damp or fire are known hazards. Environmental and sociological elements can influence your monthly premium, as can the prestige of an area.

If, for example, you bought a place in Camps Bay or Sandton, your premium would be higher than it would be if you bought a place in an area considered less illustrious.

    1. The age of the structure itself can influence your home insurance premiums.

Older buildings can sometimes be greater risks, as aged materials can collapse or fail. Older buildings generally increase the chances of a claim, and that means your insurance provider may want higher monthly premiums. Some older buildings are also built in rare and valuable styles with costly materials that would be difficult to find should they be damaged. This can also influence your premium.

    1. The same applies for the size and type of structure you have.

Thatch is notorious as a risk, and it can be a big influencer in insurance premium prices. Geysers also play a role, as they have an expiry date and often cause damage. More geysers? Higher price.

Other factors that could influence your monthly home insurance premium include how you use the property and whether you have claimed in the last few years. This is because the way you use the property can increase or decrease risk. A commune, for example, is more likely to be damaged by the occupants or through negligence than a holiday home that remains vacant for longer periods of time.

Part of getting the best out of your home insurance is understanding the implications of what is and isn’t included in your policy. Before you sign any documents, make sure you know what is and isn’t covered.

DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.

Sources: iol; property24; insuranceexpert;