Why Do Insurance Rates Increase Over Time?

As with anything else, insurance rates increase as time marches on. In fact, rates are often affected just as much by inflation as anything else you might buy.

Unfortunately, this means that the cost of premiums and policies will continue to rise. How much these rates increase depends on circumstances ranging from neighborhood growth to the world stage.

Replacement Cost Affects Insurance Rates

The first thing that you should consider is how replacement costs work. This is much different than the purchase price of your home or auto.

The replacement cost includes materials needed to “replace” the property, the cost of labor, and other elements to make it whole. If the cost of wood goes up, so will the replacement cost.

If your policy was frozen at the replacement costs from 20 years ago, it would be short. The end result is the costs coming out of your pocket.

As you can see, this kind of increase is good as it reduces how much you’ll have to pay in the event of an emergency, I recorded talking about replacement cost versus purchase or market value on your home, click here to watch the video.

Home and Auto Rates are Similar

Houses are not the only types of property that may have an increase. Insurance rates for automobiles go up as well.

In order for an auto to become “whole,” you’ll need the cost of materials and labor. Nowadays, this can also include a variety of technological advancements, such as rear cameras, sensors, and the wiring to make it all work.

In some cases, insurers will also consider things like the cost of medical bills when making adjustments. So, if the cost of medical care goes up, so do insurance rates.

Like ripples in a pond, anything affecting specific industries will take a toll on many. For example, the cost of computer chips will impact the cost of replacing the cameras I mentioned earlier.

What Can You Do to Lower Insurance Rates?

Depending on the type of property, there are quite a few methods at your disposal to reduce rates. The first thing you should do is ensure your policy is correct. If you’re paying for something you don’t need or have scheduled, it’s a waste of money.

A few other ways to decrease insurance rates include:

  • Preventative measures. Fire alarms, anti-theft devices, safety features, and other preventative add-ons often work to reduce home and auto insurance premiums.
  • Keeping claims to a minimum. The more often you have to file a claim, whether it’s for the home or auto, the more you’ll pay. This is because insurance providers will see you as a high-risk factor.
  • Shopping around. You can always look around for a lower-cost insurer. However, keep in mind that low cost doesn’t mean superior service.

Insurance Rates Are Part of the Cost of Living

Sure, insurance companies need to make money. Otherwise, they would be out of business. However, not all increases in insurance are the result of greedy CEOs or banks.

Sometimes, increases are simply the result of an increase in the cost of wood or other materials.

At Vargas & Vargas Insurance, we can help you find affordable rates and plans throughout our network. Contact us today to see how we can help you save money on home and auto coverage.

After all, we may help you keep more money in your pocket to cover the other cost-of-living expenses.

If You Are a Renter, Protect Your Possessions with Renters Insurance

Do you rent in Dorchester, MA? Are your personal possessions protected with renters insurance? If not, Vargas & Vargas Insurance can provide it.

If you currently rent a home or apartment, you will need insurance coverage to protect your personal possessions. Your landlord’s property insurance only covers his building, not your belongings.

Your personal property will only be covered with renter’s insurance, which you will have to provide. Most homeowners have an insurance policy, but only 41% of renters have renter’s insurance. Why? Many people incorrectly make the assumption that their landlord’s insurance protects them.

Also, they underestimate the value of the things they own. Just consider your electronics. It wouldn’t be a stretch to say that the value could get into the thousands. Then add to it your clothing, furniture, kitchen supplies, etc. You have more than you realize, and replacing them would cost a lot.

If you own a dog and it decides to bite a visitor or neighbor, you could be faced with a lawsuit. A renters’ policy provides the liability coverage needed in this case.

Renters’ insurance is affordable. The average policy costs between $15 and $30 per month. It will vary based on the coverage you choose, the deductible amount, and where you live.

As with every insurance policy, there are some exclusions.

  • Damage caused by aircraft or vehicles
  • Earthquakes
  • Explosion
  • Falling objects
  • Fire or lightning
  • Floods
  • Riot or civil unrest
  • Smoke
  • Theft
  • Vandalism
  • Volcanic eruptions
  • Weight of sleet, snow, or ice
  • Windstorm or hail

Protect what you worked hard to obtain. Renter’s insurance is a very affordable protection that every renter should have. Vargas & Vargas Insurance can provide a no-obligation quote or answer any questions you may have. Contact our team today. You will be glad you did.

Home Insurance FAQ: Purchase Price vs Replacement Cost pt 2

In a previous article, we covered a couple of the most common home insurance questions when it comes to the purchase price and replacement cost. Today, we’re going to dive a bit deeper to answer a few more questions when it comes to these two elements.

It is our goal to help you further understand your home insurance policies, which could save you a lot of miscommunications down the road.

Is the Purchase Price and Replacement Cost the Same Thing?

The purchase price of your home depends on several factors. These often include values such as location, age, amenities, and other things that increase its “curb appeal.” However, replacement cost is based on how much it will cost to replace something after damages occur.

Replacement costs can vary depending on current market values. For instance, if the cost of lumber increases, as it did at the beginning of 2022, it would directly impact how much it would cost to rebuild a part of the home.

Can a Replacement Cost Be Higher Than the Purchase Price?

The current market influences the value of any home. If the market is particularly low, it is possible for replacement costs to surpass a home’s value.

This is especially true if the replacement materials are at an all-time premium.

In fact, there are a lot of things that can decrease the value of a home. This could include the safety of the neighborhood, previously sustained damages or even unkempt or dangerous landscaping.

What is the 80/20 Rule for Insuring a Home?

The 80/20 rule often refers to insuring your home for a minimum of 80% of the replacement costs. This doesn’t necessarily mean 20% will come out of your pocket during a claim, though.

In practice, a lot of insurance providers will pay out a claim in full if you maintain the 80% coverage.

Remember, the purchase price has no influence on replacement cost. This means you wouldn’t insure the home for 80% of what you’re paying for it.

When the insurance you carry is lower than 80% of the replacement cost of your home, you are penalized when you have a partial loss, call us, and we can explain further based on your particular circumstances.

Do Insurance Companies Pay the Replacement Value of Items in the Home?

In certain policies, items within the home have coverage in the event of theft, damage, or if destroyed. This is known as the Replacement Cost Value, or RCV. And in some cases, this only applies to objects scheduled in the policy itself.

In this instance, insurers pay the current market value of replacing the item.

For example, technology usually depreciates rapidly. The replacement cost of something like a television or computer is often much lower than the original price.

Know Your Home Insurance Terms

Purchase price and replacement cost are only a couple of home insurance terms you need to know. And the more you understand what’s in your policy, the better prepared you are in the event of an emergency.

At Vargas & Vargas Insurance, we can help you gain some clarity when it comes to your policy. Contact us today and find out how we can further help you with home insurance.

Don’t let a misunderstanding hinder your ability to process a claim.

Home Loan Advisor or Lender First: Which Is Better?

Buying a property is an exciting process. Especially when you’re looking for that one perfect place to call home for the foreseeable future. But have you spoken with a home loan advisor? Or, did you immediately contact a lender to figure out what you could afford?

A lot of people will go with the latter as it provides a cap on what to expect. However, doing so might actually limit yourself beyond what is necessary.

What is a Home Loan Advisor?

A home loan advisor’s job is to help you figure out lending solutions based on your financial situation. Typically, the loan advisor works with credit unions and banks while having expertise in the products and services that are offered.

Essentially, they’ll walk you through the entire process from the initial application to the moment you close on a home. This gives you a bit of flexibility while potentially expanding the list of properties available to you.

How Small Credit Changes Can Affect Everything

For most people, it can take weeks if not months to find that perfect home. And if your lender ran a credit check at the beginning, you’re essentially locked at a specific loan amount.

During that time, you could be working on your credit score. Perhaps you made an extra payment towards something that will raise your score to a higher tier.

Unfortunately, this increase won’t be applicable as the lender already approved a specific amount for the loan. Or, it could take a couple of months before the credit score increases from those adjustments.

Speaking with a home loan advisor first can help you figure out the best course of action to take when it comes to your credit score. This includes any positive elements that may be pending.

It could directly affect your interest rates.

Available Down Payment

For the most part, people assume they need at least 20% of the home’s price as a down payment. So, for a house listed at $270,000, you’d need $54,000 upfront. That is if the property doesn’t qualify for things like VA or USDA loans, which often allow for purchases without down payments.

In reality, though, that down payment could be much lower depending on your financial status and the type of loan. A home loan advisor can examine your situation and find alternatives when it comes to how much you need as a down payment.

This means you might have a bit more flexibility when it comes to the amount of money you’ll need if you’re offer is accepted on a property.

Speak with a Home Loan Advisor Today

While you could still buy your house without assistance from a home loan advisor, you may have paid more than what was necessary upfront. Not to mention undercutting what you may have qualified for, in the first place.

At Vargas & Vargas Insurance, we work with the best of the best of qualified professionals to cover various home-buying needs. Contact us today so we can get you in touch with a home loan advisor that will have your best interest at heart.

It could save you an incredible amount of stress while buying your home.