Why do my insurance costs increase? How are insurance rates determined?

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How do insurance companies set rates? Why do my premiums sometimes change? Why do different companies’ quotes differ so much? Why can’t the whole thing be more straightforward?


Premiums are calculated based on risk

As discussed in Back to Basics: What is insurance?, those that represent a higher risk will pay a higher premium and those that represent a lower risk will pay a lower premium. It is your insurer’s job to make sure your premiums reflect the risk.

For example, someone with a history of heart disease will pay more for their life insurance than someone in perfect health. And someone that lives in an area prone to sewer backup will pay more for their home insurance than a person living in an area that is not prone to sewer backup.


“Within reasonable limits, some of which are prescribed by law, your premium is calculated to reflect the probability that you will make a claim; that is, that you will draw funds from the insurance pool.

Insurers take many factors into consideration to determine the likelihood that you will make a claim. A common misconception is that a policyholder who has never made a claim should pay less, little, or nothing for insurance. While it is true that past claims history is important, a more reliable indicator of how likely a person or business is to make a claim is the statistical group to which he/she/it belongs.”


– Insurance Bureau of Canada

Home insurance: what’s involved

Home insurance rates are on the rise across Canada. While the frequency of claims has only gone up slightly, their severity is increasing at an unprecedented rate. There are several general increases that contribute to the cost of your home insurance:

• The cost of building materials and labour

• The frequency of large weather-related disasters

• The cleanup costs of oil heating spills

• The value of Canadian homes and personal contents



How are home insurance rates calculated?


The factors used to determine your home insurance premium are specific to your individual situation and may include:

• the age, size and features of your home

• the materials used to construct your home

• the estimated cost of reconstruction

• the location of your property

• your previous property claims history

• your home’s heating system

• the crime rate in your neighbourhood

• the value of your personal belongings

• how close you live to a fire hydrant and fire station

• your credit score (where applicable)

• the type of home coverage and deductible you choose

• any applicable discounts



How to save money on your home insurance


You may be surprised by how easy it is to start saving money on your home insurance. Now is the perfect time to make sure you have the right coverage for your needs, at the best rate.


• Increase your deductible. A deductible is the amount you agree to pay toward the total amount of a loss: your share of the claim. The higher your deductible, the lower your premium.

• Install a monitored home security system. Not only will this protect your family and prevent claims, but you can also save up to 10% on your home insurance premium.

• Install a backflow prevention device. Flooded basements are the most common claim today, especially with more frequent storm events. This inexpensive device prevents most problems associated with sudden water buildup and could reduce your premium.

• Consider your heating source. Homes that depend on heating oil or solid fuels pose a significant claims risk and are charged higher premiums. Switching to natural gas or electric heat is safer, cleaner and more economical. If you use wood heat, have your appliance installed/inspected by WETT-certified technicians.

• Schedule a home inspection. Our trained representatives can assess potential safety issues in your home and ensure that you are receiving all applicable discounts.




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