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What are the factors that affect home insurance premiums?

Vidhu Bajaj avatar
Vidhu Bajaj
- 7 min read
What are the factors that affect home insurance premiums?

Buying the right insurance coverage for your home can protect it against unexpected situations, whether natural or caused by human actions. At a time when extreme weather events are occurring more frequently, buying home insurance could give you some peace of mind. Most home insurers also provide protection against man made threats like theft and vandalism. In that sense, purchasing home insurance could be a small cost for safeguarding your precious investment, your home. However, how much you'll need to pay to secure your home isn't easy to predict, as the cost of home insurance depends on multiple factors. 

The insurance provider you select and the extent of coverage you opt for are important factors affecting the cost of your insurance. But come renewal time, and you may find your premium amount has changed. Another factor impacting your home insurance cost is the location of your house. However, it is improbable that your neighbour pays the same insurance premium as you do, even if you both have policies from the same insurer.

Why is that? Well, the cost of your insurance depends on multiple factors, including the location of your home, its size and construction, the size of your excess, and even the property's age. However, different insurers may weigh these factors differently. Shopping around by comparing quotes from various insurers could help you find an affordable deal.

Factors affecting your home insurance premium

Here’s a list of some common factors that could impact the cost of your home insurance. 

Sum insured

Your home insurance rates are directly affected by the sum insured. This is the maximum amount your insurer will pay if you were to make a claim on your home insurance policy. Generally speaking, this amount should be enough to cover the complete cost of rebuilding your home. It should also include supplementary expenses, like labour and material costs, temporary accommodation, and professional fees for surveyors and architects. 

Selecting an adequate sum insured is like setting up a backup plan for unexpected situations. However, a higher sum insured often translates into higher insurance premiums. Alternatively, you may decide to choose a lower sum insured to save some money on your annual insurance premiums. But be careful, as a lower sum insured may not cover the full cost of repairs and replacement in case your home suffers severe damage due to an insured event. This could leave you in a tricky financial situation. 

Excess amount

Excess is the amount you pay when you file a claim on your home insurance policy. Most insurers have a standard excess, but you may opt for a higher excess to reduce the premium. Before you choose a higher excess, you must consider your financial situation to ensure you can pay the amount if a future need arises.

In certain circumstances, you may have to pay different applicable excesses. For example, if your home is damaged in an earthquake or flood, the applicable excess may be the higher of the basic amount or the fixed amount payable for a particular event. You can check the product disclosure statement (PDS) for the applicable excesses for various events. 

Property location 

Where your property is located can affect your home insurance premium significantly. For instance, if your home is located in areas that are prone to natural disasters like floods, bushfires, or cyclones, your insurance premium is likely to increase.

Insurance companies keep track of the frequency and type of past insurance events in specific areas. They use this information to predict the likelihood of future claims, which could impact the cost of insurance in the area. In general, the higher the risk an insurer takes on, the more they're likely to charge for insuring a property. 

So, if you stay in an area that's prone to natural disasters, you may need to purchase additional coverage or pay a higher insurance premium. Your insurance premium is also likely to increase if you live in an area with a high crime rate. But, you may be able to lower your premium by installing alarm systems to reduce the risk of theft in your home. 

In addition to its location, the size of your home plays a role in determining your insurance premium. All else being equal, a larger house typically results in a higher insurance cost compared to a smaller one. 

Building material

The material used to construct your home could also impact your insurance premium. For instance, using fire-resistant material in your home could help reduce the cost of your insurance by reducing the risk of fire damage.

On the other hand, using non-compliant building materials, such as flammable aluminium composite cladding or asbestos in construction, could lead to significantly higher insurance premiums, as such homes are more likely to suffer damage. Some insurers may even refuse to provide coverage for buildings constructed using non-compliant materials.

You also need to be careful if you're purchasing an older home, as it might contain some amount of asbestos. Even though asbestos was widely used as a construction material in the past, we now know about the concerns associated with asbestos exposure. However, removing asbestos from a building is expensive, and your home insurance policy is unlikely to cover it. 

Ageing structure

As a building gets older, the risks linked to it go up, and so does the cost of home insurance. With the wear and tear of the structure, problems like faulty wiring or leaky pipes become more likely. As a result, you may find yourself paying more in home insurance premiums as your property ages over time. 

General market conditions

Certain conditions that affect your home insurance premium are beyond your control. For example, insurers may hike the premium when severe climatic conditions occur. Properties located along the coastal areas are more likely to be damaged due to storms or floods, and your home insurance premium may increase due to the higher risks.

The cost of home insurance is also affected by labour, materials, and construction costs. As these costs increase, replacement expenses are also higher, and insurers will have to pay more towards potential claims. The increased financial demand for insurance companies results in higher premiums. 

Previous insurance claims

Will a home insurance claim lead to a higher premium? The short answer is 'possibly.' 

Determining the impact of a prior claim on your homeowner's insurance premium isn't a straightforward process because insurers are unlikely to share their risk calculations. Moreover, not all types of claims affect your premium equally. 

You might see an increase in your premium after a claim if you reside in a high-risk area, like one prone to extreme weather or located in a high-crime neighbourhood. Your premium could also go up if you have a history of filing liability claims or own a house with several claims against it.

If your insurance premium has jumped following a claim, you might want to explore other insurers for lower quotes. However, make sure you are transparent about your past home insurance claims when purchasing a new policy. Failing to disclose this information could result in your future insurance claims being rejected. 

Several factors can influence home insurance premiums, and not all of them are within your control. Nevertheless, reviewing your insurance coverage at least once a year may be worthwhile instead of automatically renewing it. You may also compare quotes from different insurers during your annual review to ensure you get the best value for your money. 


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Product database updated 15 Jun, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.