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Here’s Where Your Homeowners Insurance Dollar Goes

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We get it: Sending that monthly premium to a home insurance provider can seem like pouring money down a hole. Especially when consumers read studies that say only 7.2% of insured homeowners even filed a claim in 2012, the most recent year for which statistics are available.

If only 7.2% of policyholders filed claims, those premiums must be stacking up pretty high in insurance provider bank accounts, right? Turns out that thinking isn’t right at all., using data from its <ahref=””>RateReport</a> and from the Insurance Information Institute’s breakdown of underwriting expenses in 2012, has conducted a study of premiums and how they’re used by providers.

Some key dollars and cents numbers to keep in mind:

  • $815.27
  • 72.8 cents
  • $1.03
  • 62.6 cents
  • $8,384

About those premiums

The national average premium for homeowners insurance, as of the end of June 2014, was $815.27 annually, according to the RateReport. So how do providers use that money?

Here’s the breakdown on how the typical dollar Definitionswas spent in 2012, according to the III:

  • 72.8 cents: Claims and adjustment expenses
  • 29.7 cents: Operating expenses
  • .5 cents: Dividends
  • $1.03: Total

Bet you’re wondering

How can a provider remain solvent if it’s spending $1.03 for every $1 in premiums? The answer is simple: Premiums aren’t the only source of revenue for most insurers. Many use investment income and fee revenue as well.

For example, The Travelers Companies Inc. generated 2013 revenue of $26.2 billion. But nearly $3.6 billion came from investments, fees, and other sources that aren’t premiums, according to its annual report.

Breaking down the categories

Let’s dig deeper into the money that goes toward claims and adjustments to see how it is spent.

  • 62.6 cents: This is the amount from every premium dollar used to pay claims for covered perils such as fire, theft, and storm damage. The average fire claim, for example, exceeds $34,300, according to the III.
  • 1.7 cents: This goes toward legal expenses paid for by personal liability coverage.
  • 8.5 cents: The rest of the cost of settling claims and employing adjusters – the professionals who evaluate claims.

The bottom line

You’ve just been bombarded with a lot of numbers that mostly address output – what happens to the money you pay to your carrier for home insurance. But remember this: Money between policyholders and providers flows both ways. And here’s one more number to keep in mind:


That’s the average amount, including property damage and personal liability, paid to homeowners who filed claims from 2008 through 2012. It’s more than 10 times the current national annual premium average for home insurance policies sold by during Q2 of 2014.

Consider that potential $8,384 loss when you send your next premium to your provider. And then breathe a sigh of relief that you won’t face it alone.

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