What is a Premium?
An insurance premium is a specified amount of money that a policyholder must pay to the insurance company in order for the policyholder to carry an insurance policy. Premiums are based off the area you live in, the likelihood and amount of catastrophes that hit your area, and the type of home you live in. Determining these key factors lets insurances calculate the probability of a loss and, from there, give you your premium cost. Paying your premium gives insurance companies income and makes the insurance company liable in providing coverage for any claims that are being made.
Will my premium go up for filing a claim?
The purpose of having homeowner’s insurance is to protect you from an overwhelming financial loss that may be caused by an unexpected covered peril. Insurance companies understand that it is not your fault when natural disasters damage your property; therefore, they will not raise your premium individually due to weather-related losses or catastrophic claims.
However, there are some instances your premium may go up. For example:
- If your whole neighborhood was affected by a substantial storm that caused severe damages to many homeowners, and if many people are filing claims, all your neighborhood’s premium will go up. This is because the premiums in your neighborhood are put in a reserve pool that must be replenished in order for the insurance companies to pay claims out of those reserved premiums.
- If you file a claim and you are at fault. For instance, it is winter and you and your family are leaving for a long period of time. Before you leave, you turn off the heat to your house to save some money while you're gone. Because you turned off your heat, your pipes froze and burst, causing water damage to your property and items. The insurance company will not cover the loss AND may raise your premium due to the fact that you could have prevented this from happening if you simply just kept your heat on.
- The higher the number of claims you make, the higher the chances of your premium to be increased. This is because many people are careless or care less about avoiding damages because they have insurance. Insurance companies want to try and avoid this type of attitude from clients and to reduce the number of claims one homeowner makes.