When it comes to the adjective 'high,' much depends on the word that comes next. You want to be high value or high performing; you want to have high potential or be a high earner; and these days if you don't have a high-definition television, you just aren't watching TV the way the rest of the world does.
But there are times you don't want to be high. When it comes to insurance, you'll pay a price if you're considered high risk.
That's because insurance providers are all about managing risk across their portfolio of policyholders. This is the reason you're asked a series of questions when you purchase home insurance – the provider is gauging the risk you present of filing a claim. And believe it or not, that's why insurance providers (in states where it is allowed) access your credit report– to assess your risk.
Home insurance risks
What are some of major risks for home insurance? First off, the location of your house plays a major role in defining its risk for an insurance provider.
- Do you live in or near Tornado Alley? You're at major risk for a tornado. The Atlantic Coast presents a major target for hurricanes. The Northeast suffers from hard winters, with the potential of snow and ice. Much of the West faces threats from wildfires. This interactive map provides a look at how average premiums vary by state.
- The year your home was built also can trigger red flags. The age of the roof, in particular, can be a concern. Why? The older the roof, the more likely it is to suffer damage from wind or hail. Wind and hail claims were the most common claims filed by homeowners from 2008 to 2012, according to the Insurance Information Institute (III). The average wind or hail claim exceeded $7,300, the III says.
- The age of your electrical, HVAC and plumbing systems also can signal risk. Older systems are much more prone to fire and leaks – the average fire claim exceeds $34,300, the III says, while claims for water damage averaged nearly $7,200.
There are other factors that also can make you a high-risk policyholder. Chief among these are dogs, swimming pools and trampolines.
- Dogs: Bites accounted for more than 17,350 claims in 2013, according to the III. The average payout exceeded $27,860. If your dog has a history of biting or if it belongs to certain breeds – pit bulls, Dobermans and Rottweilers, among others – it will cost you much more for coverage, and that's if you can get it at all.
- Swimming pools: How dangerous are swimming pools? Ten people drown every day, according to the Centers for Disease Control and Prevention. Two of the 10 are children. All this adds up to a huge liability risk for homeowners with pools – they can even be held responsible for an accident involving trespassers.
- Trampolines: The American Academy of Pediatrics warns against their use, citing a study that identified nearly 98,000 trampoline-related injuries in 2009.
You also could be considered a high risk policyholder based on your claims history and the claims history of your house – providers believe people who have filed claims are more likely to file claims in the future. Insurers also often have qualms about homes where claims have been filed.
What you can do about these risks
You can't do much about your home's location – it is where it is. However, you can mitigate some dangers. You could pay less for coverage if you replace your roof or modernize your electrical and other systems. Plus you can win discounts for precautions such as smoke alarms or, better yet, sprinkler systems.
There also are steps you can take to mitigate other factors that place you in a high risk category:
- Dogs: Be cognizant of the breeds that insurers worry about before you add a dog to the household. Socialize it and never let it outside unattended.
- Swimming pools: Install a fence with a self-locking gate to keep unwanted visitors out. Remove the diving board. Set strict rules for using the pool – no running, no alcohol and no unsupervised swimming.
- Trampolines: Again, a fence is a must. Also, make sure there is adult supervision whenever the trampoline is in use.
- Claims history: Request a Comprehensive Loss Underwriting Exchange report – you may have heard it referred to as a CLUE report – for yourself and the house. Have any mistakes corrected. File claims only when necessary.
Risk and your credit report
When insurance providers check your credit, they're not evaluating the risk that you'll pay your premiums. Or at least that's not the main reason. Providers believe how you handle your credit reflects the chance you'll file a claim. Policyholders with poor credit, they believe, exhibit a greater chance of filing claims.
That means you should work on establishing a great credit score – paying bills on time, not having too much or too little credit, and watching your debt-to-income ratio. You should also request a copy of your credit report every year to check it for mistakes.
Your risk go away overnight. But if you can demonstrate that you're addressing it, you could win lower home insurance premiums in the end.
Shannon Ireland writes for HomeInsurance.com, an online resource for homeowners and drivers across the country. Offering comparative automobile and home insurance quotes, consumers rely on HomeInsurance.com for the most competitive rates from the top-rated insurance carriers in the country. The HomeInsurance.com blog provides fresh tips and advice on a range of financial topics to help homeowners and homebuyers make educated decisions about their insurance purchases.