Understanding your home insurance premiums

Reviewed by Daniel Mirkovic

Updated September 11, 2023

The money you pay in exchange for an insurance policy is known as the premium. Unlike many other products, insurance policies don’t have uniform prices. Instead, each policy has a unique premium.

Premiums are each unique because they’re calculated from hundreds of variables. Location, claims history, proximity to fire hydrants, and even the home’s plumbing can all affect the premium.

Every insurance provider has their own way of calculating premiums, but they generally follow the same principles. Here, we’re going to describe some of the factors that Square One uses to calculate premiums for policies we sell.

A finger pressing a button on a calculator

What is a home insurance premium?

A premium is the amount of money that an insurance company charges for a specific limit of coverage—it’s the price you pay for an insurance policy.

Read our full premium definition if you’d like more general information about premiums and how they work.

But the basic explanation is:

Thousands of insurance customers each contribute a small amount of money to a pool. These contributions are premiums. In exchange for these contributions, they can receive money from the pool when they make a claim. Most people won’t ever need to take money from the pool in a given year, but it’s there if they do need it.

This concept is known as risk sharing, and it’s the basic mechanism by which insurance works.

Premiums vs. rates

People often use “rate” and “premium” interchangeably, but there is a difference between the two. The rate is an insurance provider’s internal calculation of the cost for one unit of insurance over one year. The premium is the rate times the number of units purchased, and the annual amount the customer ultimately pays.


An insurance provider has calculated a rate of $0.11 per unit of Personal Property coverage. One unit is $100 of coverage for one year. You need to insure $25,000 worth of Personal Property, which is 250 units. The annual premium calculation would be:

0.11 * 250 = 27.5

(rate) * (number of units) = (premium)

Your premium for $25,000 worth of coverage would be $27.50 per year.

For simplicity’s sake, we’re just going to use the term “premium” throughout this article, since that’s the part that you’ll directly interact with as an insurance customer.

How are premiums calculated?

Every active insurance policy must contribute premiums to the pool. But it wouldn’t be fair for a policy covering a $1 million home and a policy covering a $200,000 home to each contribute the same amount. The $1 million home would theoretically need to take more money from the pool if it were damaged.

Risk and insurance

Premiums are different for each policy because each policy carries a different level of risk—the likelihood that an individual will need to take money from the pool, and how much money they might take if they did.

Risk is rated on frequency and severity. How likely is a loss to happen, and how bad will it be if it does happen?

(Loss is the insurance term for any event that results in a claim. Fire, theft, flood, or even a slip-and-fall lawsuit are all examples of losses.)

Because insurance providers collect premiums in advance, they must predict how much money they need in the pool to cover claims in the future. This is the field of actuarial science: using averages and probability theory to calculate risk, predict future claims, and collect enough premiums to cover those claims.

Predicting the future isn’t easy. Accurate predictions require lots of data, collected over long periods of time. Actuaries and underwriters synthesize data from hundreds or thousands of sources to calculate premiums.

A premium for every peril

We’ve looked at the big picture, now we can look at the finer details of how we calculate rates and premiums when you buy a policy.

Rather than a single rate per policy, we calculate a separate rate for each peril (the causes of loss: fire, water, wind, etc.). Each of those rates is multiplied by the limits of coverage that you choose during the quote process, and the result is the premium you see.


Assume the fire rate is $0.17 per $100 of coverage. You need $250,000 worth of coverage for your home, or 2,500 units of $100 each. Your fire premium would be $425 for one year of coverage:

0.17 * 2,500 = 425

(rate) * (number of units) = (fire premium)

Repeat the process for water, earthquake, and other perils, then add them all together. That’s the total premium. Some of these separate rates could even be zero—not every home is subject to earthquake risk, for example.

Factors that influence home insurance premiums

Here’s a look at some of the things that Square One uses to determine the risk faced by any given home, and to calculate appropriate premiums.

Home location

The location of an insured home is the most significant factor (or rather, a collection of many factors).

  • Exposure to natural disasters. This includes wildfires, hailstorms, floods, windstorms, earthquakes, and any other force of nature that can damage or destroy a home. We use data like flood maps, fire hazard maps, and historical records to gauge a property’s relative risk from each type of disaster.
  • Proximity to fire protection. Properties located close to fire hydrants or fire stations may see lower premiums than those located far away.
  • Infrastructure age and capacity. This includes things like the municipal sewer and stormwater systems serving the property. Some cities’ sewer systems are prone to flooding during heavy rain and causing sewer backups. Homes in neighbourhoods with such a history may be more expensive to insure.
  • Previous loss experience. We also look at the local history of non-natural losses. This includes crime-related loss like vandalism or theft.

Home characteristics

The way a home is built and the systems inside it can also affect premiums, as certain types of homes are more prone to loss than others. Learning about these factors also helps us estimate the rebuild value of the home, which is essential for suggesting the correct level of coverage.

  • Construction year and materials. The methods and materials used to construct your home make it more or less susceptible to certain kinds of loss. For example, homes with basements are more prone to flood damage than homes built on concrete slabs. The age of a home can also be a factor; new homes often have more advanced safety features that protect them from certain perils.
  • Home systems. This includes plumbing, HVAC, electrical, and so on. There are some plumbing materials like Poly-B or Kitec that are prone to failing and causing water damage. Electrical systems are similar: fuse boxes are associated with a greater fire risk than breaker switches. A modern heating system may result in lower premiums than old systems, which carry a higher risk of failing and causing pipes to freeze—not to mention fire hazards from some forms of heating.
  • Loss prevention features. There are many things you can add to your home to address certain risks. Installing a backwater valve can lower your premiums, as it is a defense against sewer backups. The same goes for features like emergency water shutoff devices, sump pumps, or security systems.

Occupancy and use

The way you use your home and who lives in it can also affect the risk of certain types of loss, and raise or lower premiums accordingly.

  • Occupied or vacant. A vacant home faces increased risk, as there’s no one there to respond to issues and prevent them from spiraling into serious damage.
  • Property use. Premiums can change depending on if a home is your primary residence, vacation home, or a rental property. Primary residences are the least risky, and accordingly have lower premiums. Vacation homes are often empty, which increases the risk (similar to a vacant property). While rental properties may not be empty, the owner doesn’t control who comes and goes, which increases the risk.
  • Roommates or live-in tenants. Living with unrelated roommates isn’t inherently risky, but there is also less control about who visits the home. This increases the risk compared to living only with family members.
  • Short-term rentals. One of the higher-risk occupancy categories is the short-term rental, meaning homes listed on sites like Airbnb or VRBO. Having large numbers of strangers move in and out of the home increases the risk of someone causing damage.

Personal characteristics

We don’t ask for a lot of personal information during the application process, but there are a few personal characteristics that can affect your final premium.

  • Age. Most home insurance providers offer an age-related discount, and Square One is no different. However, our discount isn’t separated from the premium—it’s built in.
  • Claims history. People who can show a history of being insured without making claims usually receive lower premiums.
  • Credit score. Having a high credit score may result in lower premiums. During the application process, we do a soft credit check, which does not affect your credit score.
  • Mortgage status. Similar to credit history, having paid off your mortgage may lower home insurance premiums as well.
  • Dog breeds. It may seem strange that we ask about dog breeds living in the house, but certain breeds of dog are associated with more frequent liability claims, which accordingly call for higher premiums.

Coverage and deductible selections

Everything up to this point has been a determining factor in your rate. However, many of the factors above are things you don’t have a lot of control over; you can’t relocate your house just to save on earthquake premiums.

After calculating rates based on the above factors, we come to the final factors that determine your premium: coverage and deductible selections. These are the price factors over which you have the most control.

  • Guaranteed building replacement coverage. As a homeowner, the majority of your home insurance policy exists to cover your home. With the answers you give during the application process, we estimate the cost of rebuilding your home. If you buy at least that much coverage, you’ll be eligible for Guaranteed Replacement Cost coverage, meaning your policy will pay to rebuild your home even if it exceeds your limit of coverage. You can choose a lower limit and pay lower premiums, but your policy may not be enough to cover a total loss of your home. This coverage is absent from tenant or condo owner policies, which is part of why those policies are often cheaper.
  • Personal property coverage. We provide an expert recommendation for this coverage limit during the quote process, but only you know what your home’s contents are worth. Raising or lowering this limit will affect your premium.
  • Liability coverage. Home insurance policies include liability coverage. With Square One, you can choose a limit ranging from $500,000 to $3 million. Raising or lowering this limit will affect your premium, but it tends to be one of the less expensive coverage options.
  • Specialty property. Unique to Square One are specialty property coverages like Bicycles, Sporting Equipment & Watercraft or Fine Arts & Collectibles. Your policy won’t cover items in these categories unless you choose to add them. Adding any of these coverages will increase your premium relative to the coverage limit you choose.
  • Optional coverages. We also offer certain optional coverages like Identity Theft Protection and Legal Protection. Additionally, earthquake coverage is optional on most policies. Adding any of these optional coverages will impact your premium accordingly.

Why do premiums change?

When you buy a policy from Square One, the coverage is continuous until cancelled, but we do review policies annually.

From a price standpoint, the annual review process is essentially the same as the initial purchase. We will re-evaluate the rating factors to see if anything has changed over the year. Usually, this results only in small changes to your premium. Your premium may increase or decrease depending on things like crime rates, changes in your claims history, or whether you’ve added safety features to your home.

We’ll let you know about any changes to your premium at least 30 days beforehand.

There is, however, one more significant factor in home insurance price changes:

Premiums and natural disasters

This relates to the pool we mentioned earlier. Each year, the pool will be a different size, and each person contributing to the pool will need to contribute more or less than they did the previous year, even if nothing else changed.

You’ll recall that the pool’s size is based on an estimation of future claims costs. When claim costs go up, so must the pool get larger.

Unfortunately, claims costs have been trending up in Canada for every home insurance provider, and this has led many people to see rising premiums.

In fact, the most expensive years in history for Canadian insurers have nearly all happened in the past decade:


Total loss

Notable loss events


$5.96 billion

Fort McMurray wildfire


$3.87 billion

Alberta and Ontario flooding


$3.12 billion

Hurricane Fiona, western Canada storms


$2.83 billion

Quebec ice storm


$2.48 billion

BC flooding and Calgary hailstorm


$2.46 billion

Alberta flooding and hailstorm


$2.4 billion

Ontario and Quebec storms

Loss and adjusted expenses in 2022 dollars

These enormously destructive events have caused many home insurance customers across Canada to see increased premiums, even if they weren’t directly affected by the disasters. A modest increase to everyone’s premiums helps insurance providers cover the losses of people whose homes suffered severe damage.

What about when you move?

Some people are surprised by how much their home insurance premiums change when they move, even within the same city.

When you move, almost all of the rating factors above will change; the only ones that stay the same are your personal details, which determine just a small part of your premium. In addition to differences in the home itself, even two homes separated by a few blocks might face completely different risks. Just a few hundred metres can make a world of difference in flood or theft risks, for example.

Learn more

Home insurance premiums can seem complicated or even arbitrary at times, but hopefully this has helped you understand some of the methodology that goes into calculating them.

Sometimes it seems like the policy application asks for a lot of information, but every question in our quote form is there for a reason. It either helps us figure out how much coverage you need, or how much that coverage should cost.

If you have questions about your policy specifically, you can get in touch with a Square One agent using the chat feature on this page or sending an email to info@squareone.ca.

Want to learn more? Visit our Home Insurance Basics resource centre for dozens of helpful articles to guide you through the ins and outs of home insurance. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.

About the expert: Daniel Mirkovic

A co-founder of Square One with 25 years of experience in the insurance industry, Daniel was previously vice president of the insurance and travel divisions at the British Columbia Automobile Association. Daniel has a bachelor of commerce and a Master of Business Administration (MBA) from the Sauder School of Business at the University of British Columbia. He holds a Canadian Accredited Insurance Broker (CAIB) designation and a general insurance license level 3 in BC, Alberta, Saskatchewan, Manitoba and Ontario.


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