How are insurance premiums determined?

By Allstate

Last updated: January 1

Before you start requesting and comparing residential insurance quotes, you may want to have a good understanding of the basics.

Whether you own a house, condo or manufactured home, you can purchase insurance based on the amount of risk you're comfortable accepting. Every individual has unique situations and circumstances that may influence the decisions they make when selecting a policy. Here are some factors that may help determine what kind of insurance policy is right for you and how much you may pay for it.

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Your deductible levels

The dollar amount you're required to pay toward a covered loss — commonly referred to as a deductible — may be a factor in the amount of your annual premium. Typically, your premium will be lower if you select a higher deductible, according to the National Association of Insurance Commissioners (NAIC). If you have a covered loss, the deductible is the amount that you'll pay out of pocket before your insurance benefits kick in.

Your insurance history

Your prior insurance history can affect the types of coverage you are able to purchase as well as your premium levels. Some factors that may affect premiums are:

  • Frequency of claims
  • Insurance Score (related to credit history)
  • Continuous coverage (few or no periods without insurance)

Your location

One of the factors used to price policies are the types of claims that have happened in your neighborhood. Things more specific to your home's location, like how close you are to a fire hydrant and whether your area is served by a professional or volunteer fire department can affect your premium, the Insurance Information Institute (III) says. In addition, geographical location, such as proximity to the coast, may also be a factor in your premium, the III says.

Your personal property

Belongings — referred to in most policies as personal property — are covered by typical residential insurance policies. As with other types of coverage, limits will apply. The types and values of your belongings can help you determine how much coverage you should purchase and whether you may benefit from any additional coverage, such as scheduled personal property.

Your home type

Type of home you live in may also play a factor in your premium. Square footage, the materials used to construct the home and the age of the building are among the factors that may influence premium costs, the III says.

Regardless of what type of residence you own, insurance may help protect your residence and its contents. A local insurance agent can help you learn more about available coverages and which ones may be appropriate for you.