Ten Factors of Pricing Home Insurance

Through the process of buying your first house, you've made it through the world of understanding mortgage rates, property taxes, home inspections, closing costs and escrow. Next up is understanding Homeowners insurance, and what you can do to fit the premium into your budget.

Here are some key factors that determine how insurance companies calculate your Homeowners insurance premium:

1. Location - Where your house is located is one of the major factors that insurance companies take into consideration when determining your premium. The closer you are to a large body of water (like an ocean), the more likely you are to sustain damage from an event like a hurricane. For that reason, insurance companies will charge more. Another factor that insurance companies consider is how far you are located from a fire station. The farther you are, the greater the risk of your house burning down before the fire department can arrive. This increases your risk and, in turn, increases your premium.

2. Your deductible - When you choose the amount of your deductible when you buy your policy, you are determining the amount of money you will pay in an insurance claim before your coverage kicks in. Deductible pricing is based on the concept of "using" your insurance. Customers with low deductibles traditionally make the purchasing decision assuming they will use their insurance frequently, which is why they select a low deductible. Customers with high deductibles enjoy a lower premium, but they will have to pay more out of pocket in the event of a claim. It's important to note that when you file a claim, the amount of your deductible is subtracted from the amount of money the insurance company will reimburse you. The lower your deductible, the higher your premium will be.

3. Credit history - Insurance companies determine your insurance premium based on how risky they determine you to be. Research from the Federal Trade Commission, among others, has shown that people with poor credit history tend to file more claims, so having a poor credit history may increase your premium. The states of California, Hawaii, Maryland and Massachusetts prohibit the use of credit scores as an insurance rating factor, but credit is commonly used in determining premiums almost everywhere else.

4. Claims history - When you file a claim with an insurance company, your carrier could report it via C.L.U.E. (Comprehensive Loss Underwriting Exchange) Personal Property report. A higher number of claims that are included in this report for you will usually translate into a higher premium from your insurance company.

5. Breed of dog - Owning what is considered to be an "aggressive" dog breed could increase the cost of your homeowners insurance policy due to the prevalence of dog bites. About 4.5 million dog bites occur annually in the US. The list of aggressive dog breeds may vary by insurance company, so it's important to check with your insurer. Some insurance companies consider aggressive dogs to be an ineligible risk, which means they won't even issue you a policy.