Your premium is calculated on a number of factors, and is designed to provide the insurance company with a fee proportional to the risk that insuring your home incurs. However, each company has its own underwriting standards, so even if one company may reject your application, another one might accept it.

Those criteria used to help decide the amount of premium to charge for a homeowner's insurance policy include:

Type of Coverage

The higher the level of protection, the higher the premium. Thus a H)-3 policy will cost more than a HO-2 policy.

Amount of Coverage

The higher the amount of coverage, the higher the price of the insurance.

Type of Construction

The type of construction of the property (and hence the cost of its repair) affects the premium. Construction types include wood, brick, concrete or steel frame.

Age of Home

In general, older homes are more vulnerable to loss than homes of newer construction. This is often due to old building codes and older wiring.

Location of Home

The location of the property will affect the premium; a house located in an area susceptible to earthquakes or hurricanes will attract a higher premium, as will one situated in the inner city, rather than in a stable sub-division.

Fire Protection

This includes the type and quality of your community's fire protection as well as how far you live from the nearest hydrant or fire station. Some insurers may offer discounts if fire-resistant building materials are used, while others may make fire-resistant materials a pre-requisite before they will insure a dwelling.

Riders

Additional protection in the form of riders and other options will increase the cost of the premium.

Deductibles

The deductible is the amount that the policyholder must pay for each claim before the insurance company pays out any claim. Lower deductibles result in more expensive premiums than higher deductibles. If you increase your deductible, you significantly reduce the risk of loss to the insurance company and can reduce the cost of the policy. This ensures good coverage for major claims while you pick up the tab for smaller ones.

Loss Valuation

Replacement cost options (where claims for items are paid at their full replacement cost) result in a higher premium than actual cash value options (where an amount for 'wear and tear' is deducted from the claim value).

Reducing the Cost

In addition to increasing deductibles, there are a number of ways you can reduce the cost of your homeowners insurance premiums. You can diminish the cost with some of the following:

• Always make sure that you look at offers from a number of insurance companies - don't simply settle for the first quote you find.
• Paying for your insurance in full once each year may be cheaper than a semi-annual, quarterly or monthly periodic premium payment schedule.
• If you have been with your insurance company for a number of years, you may be able to pick up a longevity discount. The longer you have been with the same company, the greater the reduction. Some companies may also offer discounts if you have been with them for some time and have not incurred losses.
• Multiple policy discounts - many insurance companies may offer you a discount if you buy two or more policies with them (for example, your auto insurance and your HOI).
• Group insurance - some organizations, employers and unions have made arrangements for discounted insurance for their members and employees.
• Some insurers offer senior citizen discounts as they generally spend more time at home.
• The installation of burglar-proof security devices such as dead bolt locks, alarm systems and motion-sensing outdoor lights can each reduce your premium. A home-security system that calls a private security firm or the local police can offer even higher discounts.
• Some companies reduce premiums if all the residents of the property are non-smokers.