Why does my neighbour pay less than I do?

Why does my neighbour pay less than I do?

by Pascale Tremblay-Villeneuve

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« Have you made any claims? And what about your neighbour? »

Banlieue_2016-07-11

Throughout our lives, we buy goods and services. Then, we hear about a friend or relative who bought the same thing we did—same make and model—at a different price. In stores, prices may vary, especially as a result of weekly specials, the supplier’s price, and the business’s strategy. But, with insurance, it doesn’t work the same way. So why would your neighbour pay less for home insurance than you? Below you’ll find the answer to this question.

First, it is important to know that home insurance premiums vary according to several factors, not your property value alone, as many would think. Based on claims and the various incidents that can occur with regard to home insurance, actuaries gather data to establish correlations between various factors and claim risks. Your insurance premium will therefore be based on all of the characteristics specific to your file, and the potential claim risk for a group with similar characteristics.

Deductions

Does your neighbour’s dwelling have an alarm system? Is their car insured with the same insurance company? Do they have a mortgage creditor? Do they work for the government or hold a bachelor’s degree? All of these criteria can decrease or increase the cost of your home insurance. Why these specific criteria? Because there is a correlation between home insurance risk and not having a mortgage creditor. Someone who doesn’t have a mortgage to pay off will have increased financial capacity to invest on preventive measures or maintain the property, i.e. replace the windows, roof, or hot water heater; install gutters; etc. New windows or a new roof have a lower risk of water infiltration. The age of the building also plays a role. A dwelling built in 2010 will cost less to insure than one built in 1950, in which the age of the building and wear and tear to materials increase the risk. If the risk of water infiltration is high, so are the insurance premiums.

Additional premiums

Does your neighbour have a fireplace or wood stove, or does the dwelling have oil heating? Obviously, the risk of fire is increased when a property is heated with wood. The risk related to heating a property with oil is that the tank may leak, which could damage the interior of the property or contaminate the ground. For most insurers, a 25% rebate is allocated to clients who have made no home insurance claims in the last five years. Have you made any claims? And what about your neighbour? This information is not always known.

Coverage

Home insurance coverage should also be considered. Even if your neighbour’s property is insured just like yours, say for $300,000, some coverage may not be the same. The first thing to look at is the insurance form. It may or may not contain the replacement value of the dwelling and the furniture it contains. The same goes for the all-risk coverage in comparison to less comprehensive coverage. Many types of coverage are generally not included on a basic insurance form. These additional types of coverage are called “policy endorsement” and can cover sewer backups; groundwater infiltration (which always have limitations); overland water infiltration; earthquakes; pools and spas; water service entry; identity theft, legal fees, etc. Additional civil liability coverage is also available, such as umbrella insurance. It is also possible to increase your coverage for some personal belongings, like jewelry, bicycles, and collectors’ pieces.

Auteur Lareau - Pascale Tremblay-Villeneuve
Pascale Tremblay-Villeneuve