5 Pricing Factors That Make Up Your Insurance Rate

by | Auto Insurance, Commercial Insurance, Homeowners Insurance | 4 comments

5 Pricing Factors That Make Up Your Insurance Rate

Whether you’re looking to protect your home, car, or business, insurance is something that you absolutely need to ensure you’re always protected. Getting insurance can sometimes be intimidating; there are a ton of questions that you are required to answer, options that you can choose or forego, and different dollar amounts you can be covered for. Once your insurance broker has all the necessary information mentioned above, they will provide you your policy price, and you can sign away. 

If you’re new to getting insurance, or just not sure what actually goes into building your final price, we’re here to break down all the different factors that affect your insurance pricing.

1. Coverage Amount

No matter what type of insurance you are shopping around for, your insurance company will always state a coverage amount. For Replacement Cost policies, this amount means this is the maximum amount the insurance company will pay out for a covered claim.

There’s another option called Guaranteed Replacement Cost, where the insurer agrees to pay what is necessary to rebuild your property, regardless of the maximum amount shown on your policy. This adds another layer of protection, as costs fluctuate throughout the year. The majority of homeowners policies have Guaranteed Replacement Cost, as it’s in the best interest of the client.

For both of these options, keep in mind, the higher the coverage amount, the higher the premium. Your insurance broker can work with you to choose a coverage amount that properly protects you, at a reasonable cost.

2. Deductible

If you have any type of claim you are looking to file, you will have to pay what is called a deductible. This is a set amount of money the policyholder (you) will pay before the insurance company steps in to pay the remainder. 

For example, your business has $5,000 of product ruined while stored in a warehouse, but your deductible is $500. You would be responsible for paying the $500, and then your insurance company would step in and pay the $4,500 to cover the rest of the lost product cost.

A rule of thumb for any type of insurance policy is the higher the deductible, the lower the premium. You can work with your insurance broker to decide on the right balance for your needs between your premium and your deductible amount. 


3. Location

Location can impact your insurance rate depending on the type of insurance you are looking to get. Below are a few examples of instances of where your premium would be higher depending on your location.

  • if you live in an area prone to natural disasters such as flooding, earthquakes, or hurricanes.
  • if you live in an area where the number of automobile accidents are high.
  • if the address is in an area that has a high crime rate

These are all factors that an insurance company takes into consideration to assess the likelihood of a claim occurring. The higher the likelihood, the higher the premium.


4. Occupation or business type

If you are working or running a business that tends to have higher risk of injury or liability, this can also impact your insurance rate. For example, if you are a construction worker, or own a construction company there is a higher risk to an injury or damage to expensive equipment, which would result in a higher chance of a claim.

However, if you are in a profession where you provide services to others, such as a lawyer, doctor or accountant, you will need Professional Liability Insurance. Having this insurance protects you from any losses or damages incurred by a third party. 

Since claims from these types of professions are more frequent, and can be costly, the premium for this policy is likely to be higher because the insurance company will need to account for the money to cover these claims, but also make a profit off of the policy. 


5. Claims history

If you’ve read the points above, by now you’re probably realizing that when Insurance companies are looking at providing you coverage, they are weighing the risks for any instance. Since this is the case, they will also look at how many previous claims you have submitted. If you have a history of making claims, your insurance premium may be higher because the insurance company views you as a higher risk. On the other hand, if you have a clean claims history, your insurance premium may be lower.

As you can see, there are a number of different factors that can go into making up the price of your insurance policy. To gain a better understanding of what your insurance costs would be, with the right coverage, it’s always best to consult with a broker. 

If you’re looking to get insurance coverage for your home, business, vehicle, or really anything else; reach out today and one of our brokers would be happy to work with you to get the best policy for your needs. 


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