Q: What does credit history have to do with insurance?
A: Over the last few years, many insurance companies have started using credit information to help determine what a customer pays for an insurance policy. In fact, over 90% of insurance companies use insurance scores, according to a study by Conning Research and Consulting Inc., a Hartford, Conn.-based research firm.
An insurance score is determined by reviewing a consumer's credit history. A carefully developed and tested computer model performs this analysis, and looks at information such as payment history, whether you have filed for bankruptcy, if you have bills with a collection agent, any outstanding debts you may have, and the length of your credit history.
Unlike a "credit score," which is typically used when you are seeking a loan, an insurance score is used to help insurance companies accurately assign the best price available for your policy.
Since insurance scores have been proven to be highly predictive of the potential for future losses, they help insurance companies determine the likelihood that a customer will file a claim, and thus allow carriers to set rates that are accurate and appropriate for each customer. This enables carriers to offer insurance coverage to a broader range of customers. What's more, many of these customers benefit from the use of insurance scores in the form of lower prices.
Q: How do insurance companies calculate the replacement cost of your home?
A: Your home is one of your most valuable assets. Make sure you have enough dwelling coverage on your homeowners insurance policy to rebuild it to its original state if it's destroyed by fire or other covered cause of loss. Any while the current market value of your home may be lower than you'd like, the cost to rebuild may be higher than you think.
Cost to rebuild
The cost to rebuild your home is based on a number of factors and can often be higher than the potential selling price of your home. That's because the price of building materials may have increased over the past few years while the value of real estate has generally decreased.
Key factors that impact the cost to rebuild your home include:
- Total living area (square footage of the home)
- Style of home (i.e. ranch, contemporary, colonial)
- Exterior wall construction (i.e. frame, brick)
- Number of kitchens and bathrooms and quality of materials
- Garage type (i.e. attached, detached, built-in)
- Special features (i.e. skylights, fireplaces, porches)
- Additions or enhancements (i.e. finished basement, in-law apartment)
Why rebuild costs differ
Costs to rebuild your home often differ from home market values, mortgage requirements, tax assessments and real estate appraisals. This is due to a number of factors:
- Costs for many raw materials that are needed to make repairs or to rebuild have increased in recent years, in some cases very significantly.
- Specialized workers are often needed, in the event of a loss, to prevent further damage to your property.
- Building codes may have changed since your home was built.