You’ve just purchased a new home or business property and it’s time to get insurance. 

As you start shopping around, you may be wondering – how exactly do insurance companies determine what to charge for property insurance premiums? 

The premium – the amount you pay for insurance coverage each year – can vary quite a bit between insurance companies. 

The specific underwriting formulas insurance companies use are proprietary, but generally, there are several key factors that affect your property premiums. 

Being aware of these factors can help you understand why premiums may be higher or lower for your property.

Location, Location, Location

One of the biggest factors affecting your premium is location. Insurance companies calculate premiums based in part on the risk of a peril occurring. 

If your home or business is in an area statistically more prone to risks like fires, floods, tornadoes, or hurricanes, you can expect to pay more for insurance than someone in a less disaster-prone region. 

Insurers assign ratings to geographic areas based on risk models, and these ratings directly impact your premium. 

For example, your premium will likely be lowest if you live somewhere rated a 1 for risk, and highest if you live in a “catastrophe zone” rated a 10.

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Details of Your Property 

In addition to location, details about your specific property can also affect your premiums. Important factors include:

Age of building: Brand new construction may qualify for discounts, while older buildings may cost more to insure.

Building materials: Frame construction may cost less than brick, which is more resistant to damage.

Quality of roof: Materials like tile or metal are more durable than shake or asphalt shingles.

Safety features: Things like fire/burglar alarms and fire-resistant materials may lower premiums.

Distance to hydrant: Proximity to water sources for firefighting can reduce premiums.

The bottom line is that insurers will assess the risks of insuring your specific property and price your policy accordingly. 

A higher-quality, lower-risk property will generally merit lower premiums.

Amount and Type of Coverage

How much insurance you buy also impacts your premiums. 

Opting for a higher level of coverage – say $500,000 instead of $300,000 – will raise your costs. 

Your choice of add-ons like flood insurance or replacement cost coverage will also increase your premium. 

However, this allows you to customize your policy to your needs and budget.

On the other hand, raising your deductible – the amount you pay out-of-pocket before insurance kicks in – can help lower your premium. 

Just be sure you can afford the larger deductible in case you need to file a claim.

Your Claims History

Insurers will look at your history of prior claims when pricing your policy. If you have a clean record with no past property damage claims, you may qualify for discounts.

However, if you have a history of frequently filing claims – even for relatively minor issues – your premiums will likely be higher. 

Insurance companies see this as an indicator you may continue filing claims in the future.

Credit History

In most states, insurers are allowed to use your credit-based insurance score as a factor when setting premiums. 

So if you have a poor credit history, expect to pay higher premiums. 

Maintaining a high credit score and overall financial responsibility can earn you a lower insurance rate.

Bundling Policies and Seeking Discounts

One easy way to potentially lower your premium is by bundling your property insurance with other policies from the same insurer, like auto or life insurance. 

Most insurers offer discounts of up to 15% for bundling multiple policies.

It’s also worth asking your insurer what other discounts may be available. 

For example, you may save by installing security devices, being claim-free for a period of time, or buying both home and auto policies from the same company.