Credit Scores for Home Insurance

An informed consumer shops for insurance as carefully as they might for an automobile or a major appliance.

We all want to pay the least possible for the best coverage available. There are a number of aspects of insurance, particularly home insurance, to examine as you shop.

Be sure to use the FREE home insurance comparison tool above!

One aspect of insurance that you may not have considered is the effect that a home insurance credit score can have on insurance premiums.

Please be aware that credit-based insurance scores are not the same as credit scores.

Insurance companies use different credit aspects to determine insurance credit scores.

These scores help the insurance company use relatively unbiased information to determine the possibilities of how often you are likely to submit insurance claims and how large those insurance claims might be. Studies by a number of entities have indicated that insurance credit scores are a reliable method of predicting possible claims.

Since an insurance company’s profits depend upon the ratio of premiums written to the cost of claims, they are careful to choose the purchasers they will accept as insurance risks.

Each insurance company has a different method of examining credit scores to determine insurability, so it is worth the time it takes to ask for quotations from different insurance companies.

costs of home insuranceInsurance companies base their credit criteria on a variety of the following items:

  • Payment history, including bankruptcies and collections
  • Amount of outstanding debt
  • Length of your credit history
  • Types of credit in use
  • New applications for credit

Insurance companies base a portion of their scores upon new applications for credit, but they limit those new applications to ones that you as an individual initiate.

Patterns of financial management are important to insurance companies, so applying for one credit card will not affect your insurance credit standing, but several applications can affect it.

Credit based insurance scores do not check the following items:

  • Income
  • Gender
  • Ethnic Group
  • Disability
  • Nationality
  • Sources of income such as public assistance

This criterion effectively prevents discrimination against certain ethnic or income groups.

In addition, if you are denied insurance coverage for a credit-based decision, you are entitled to an explanation of the reason for denial.

How do credit-based insurance scores work to your benefit?

You can positively affect your insurance scores, thus reducing insurance premiums. With the use of credit-based premiums, the following trends have been observed:

  • You can qualify for lower premiums because insurance companies offer lower rates to consumers with lower risk.
  • A more comprehensive group of coverage varieties has become available because insurance scores boost competition.
  • You can improve your credit score by using credit wisely- paying bills on time, and being responsible financially, thus qualifying for lower insurance rates.

For more information about credit and its usage, link to the Federal Trade Commission’s website and browse a little.

Other Vital Aspects of Shopping for Insurance

free homeowners insurance quoteMake certain that the insurance you purchase for your dwelling and contents are adequate, but not too much for the job.

Sometimes individuals purchase dwelling insurance based upon the purchase price of the house, which can be too much or too little for their purposes.

There are a number of replacement cost calculator applications on the Internet that take the area of the dwelling and apply a formula to estimate replacement cost.

One of these free websites is

Replacement Cost v. Actual Cash Value

Replacement cost coverage is desirable on a homeowners policy to ensure that losses are fully covered. For example, replacement cost coverage on a television will allow the television to be replaced with like kind and model, so you don’t have the extra costs for wear and tear that often apply.

Actual cash value coverage pays the particular value of the item at the time. For example, if you purchase actual cash value coverage on a roof that is fifteen years old, the claim may be reduced by half due to the age of the roof.

A roof that could cost $6,000 to be replaced will earn a reimbursement cost of $3,000 because wear and tear depreciation is taken off.

If you have replacement cost coverage, however, the full amount of $6,000 would be paid, less the deductible, of course.

Perils Insured

There are forms of coverage under a home insurance policy and each has a certain list of perils insured. The different forms are as follows:

  • Basic form – fire, smoke, windstorm, hail, lightning, explosion, vehicular damage, civil unrest, theft, and vandalism
  • Broad form – has all the above perils; weight of ice, snow, and sleet; freezing, rupturing, and sudden and accidental overflow of a plumbing, heating, or cooling system
  • Special form – includes all of the coverage carried in the Basic Form and the Broad form, with other coverage added.

Deductibles and Their Benefits

A deductible is the amount removed from a claim because you, as insured, have agreed to pay a certain amount of the loss. In return, the insurance company may reduce your premium.

Higher deductibles usually earn you higher credits.

A suggestion might be to use the money you save on premiums for a separate repair fund for your dwelling.

Licensing, Financial Status, and Claims Ratios for Insurance Companies

It is illegal for insurance companies and agencies to sell insurance without being licensed within the state in which they are selling. To find information about these topics as well as other consumer insurance topics, you may wish to go to your state’s insurance website.

Each state has a branch of the state government that oversees ratings, licensing, and business practices for insurance companies. Some states also forbid the use of insurance credit scores to help rate insurance. Be certain you know your state laws about this.

how much is house insuranceOther places to search for information about the financial stability of insurance companies and their complaint ratios are as follows:

Ratings help you determine whether the insurance company will stay in business for a period and complaint ratios tell you how happy people are with the way a particular company settles its claims and handles their everyday business.

Comparison-Shopping for Insurance

Most insurance policies are renewed on a yearly basis. Each year, plan to examine the coverage, perils insured, deductible, and status of the insurance company to be sure that you have the best fit possible for your home insurance.

The time and patience it takes to obtain at least three different quotes can give you the basis for informed decisions about your insurance.

Read the policy you receive carefully to determine the perils for which your home and contents are covered. Remember that a home insurance policy does not provide flood and earthquake coverage.

Be sure to use the FREE comparison tool below!