Minnesota ranks as the 4th worst state for homeowners insurance, according to Bankrate.com. The variety of weather related storms that we see in all seasons is the main determining factor. In 2021 the average home insurance cost of home insurance valued at $250,000 was $1785. This is $500 more than the national average.
Minnesota Home insurance ranked 7th for total weather related losses. There were 37 tornados in 2021. There were over 2000 Wildfires that burned 69,000 of land in 2021. The large number of home insurance claims combined with the increased costs of shingles for roofing, siding materials, windows, lumber and all other materials lead to more costly insurance claims.
Why Minnesota Insurance Companies Raise Rates?
The high volume of insurance claims and the increased costs of rebuild and repair have lead to insurance companies increasing home insurance coverage and raising homeowners insurance premiums. Just like any other business, their goal is to earn a profit. If insurance companies pay claims more in insurance claims than they receive in premiums, than they will raise insurance rates.
How Do Insurance Companies Determine Rates?
The primary goal of your home insurance policy is to protect your home from damages. First, a formula is used to determine what the rebuild cost of your home in today’s labor and material cost. Home Insurance is not coverage for the loan on your home, it’s purpose is to rebuild your home. This is the first rating factor. Next are potential loss factors of your home itself. If your home is newer, with newer appliances, furnace, electrical, than rating is typically lower. Location of your home is a rating factor. If you are farther away from the fire station, there is a higher likelihood that your home may completely burn down if there is a fire. The age of the roof of your home is big rating factor on your home insurance. Replacement of a roof is the single most costly loss for an insurance company. A newer roof will receive a discount. If you are in location that for one reason or another has higher insurance claims, than your rating may be a little higher. Insurance companies will also rate on the homeowner themselves. What is their past claim reporting history? What is their credit? Insurance companies believe and have done multiple studies that suggest that people with higher credit scores are less likely to file a claim.
Other rating factors considered for the home insurance ranking are; average percent of income spent on homeowners insurance, number of permits applied for to build residential units, and total incurred losses by state.
The replacement of a residential home roof is the single most costly claim for the Minnesota Home Insurance Industry. In most cases the roof of your home is covered on a Replacement Cost basis. This means if the roof is damaged, you are able to replace it with a new roof rather than being paid out with an actual cash value settlement. An Actual Cash Value settlement means that the material that is damaged is depreciated in value. If you bought a new TV in 2020, it may have been worth $500. Two years later, the insurance company will determine that the TV isn’t worth $500 anymore because it is 2 years old. It may only give you $300 for that television. Its the same for your Roof. If your roof is 5 year old, it may have cost $20,000 to put on 5 years ago. Now it is 5 years old, and the value of that roof, may only be $15,000.
For more information on your home insurance or for a home insurance quote, please contact us on our short contact form listed below. You can also call or text us a (763)767-0522 anytime.