Considering Home Insurance
If you own a home or are planning to, homeowners insurance is a necessary expense that, ironically, you hope you never have to use. All homeowners insurance policies are not created equal. There are many variables that can make a policy more or less expensive and effective, and knowing what to look out for can make all the difference.
Fortunately, it’s not hard to save on premiums by taking some time to review your current policy and company offerings and explore other options. However, you shouldn’t sacrifice important coverage that could cost you dearly later just to save a few bucks in the short term.
Here are 10 things to consider.
Make Your Home More Secure
Ask your insurance company what you can do to make your home more resistant to natural threats and other risks. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger exterior and interior materials. If you have an older home, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.
You can usually get discounts of at least five percent for a smoke or carbon monoxide detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sprinkler system or an alarm system that is connected to police, fire or other monitoring stations. These systems aren't cheap and not all of them qualify for a discount. So, before you invest in one, find out what kind your insurer recommends, how much it costs and how much you'd save on premiums.
Know What’s Covered and What’s Not
Remember that damage caused by natural disasters such as hurricanes and earthquakes is not typically covered by a standard homeowners policy. If you buy a house in a flood-prone area, you'll have to pay for supplemental flood insurance that costs an average of $400 a year. The Federal Emergency Management Agency offers useful information to check out. A separate earthquake policy is available, but the cost will depend on the likelihood of earthquakes in your area. In California the California Earthquake Authority provides this coverage.
The full value of items within your home like fine jewelry and art, collectibles and high-end electronics are also not covered by a standard policy. If you run a business out of your home, be sure to consider coverage for that too. Most homeowners policies cover business equipment in the home, but only up to $2,500, and they offer no business liability insurance.
Make sure you review the limits in your policy and the value of your possessions at least once a year. You want your policy to cover any major purchases, renovations or additions to your home. But you also don't want to pay for coverage you don't need. If your insured valuables are no longer worth what you paid for them, you should reduce or cancel your supplemental coverage and save the difference.
Don’t Overestimate Property Value
Your house might be at risk from theft, wind damage, fire and the other hazards covered in your homeowners policy, but the land it sits on probably isn’t. So make sure to exclude its value when deciding how much homeowners insurance to buy. If you don’t, you will pay a higher premium than you should.
Seek Out Discounts
Most insurance companies offer several types of discounts, but they don't all offer the same discount or the same amount in all states. For example, since retirees stay home more than working people, they are less likely to be burglarized and may spot fires sooner. They also have more time for maintaining their homes. If you're at least 55 years old and retired, you might qualify for a discount of up to 10 percent.
Some employers, professional associations and universities administer group insurance programs that may offer a better deal than you can get elsewhere, or can at least qualify you for discounts with your current insurer if you are affiliated. Additionally, some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. But beware that this combined price may not always be lower than buying the different coverages from different companies, so you should still shop around.
Increase Your Deductible
Deductibles are the amount of money you have to pay toward a loss before your insurance company will pay a claim. The higher your deductible, the more money you can save on your premiums. Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you can save as much as 25 percent.
Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the East Coast, you may have a separate hurricane deductible; if you live in the Midwest, you may have a separate deductible for tornadoes; and if you live in California, your earthquake policy probably has a deductible.
Keep Up the Good Credit
Maintaining a solid credit history can cut your insurance costs. Insurers are increasingly using credit information to price homeowners insurance policies. If your credit has improved significantly since you bought your policy, try negotiating a lower premium. In most states, your insurer must inform you if they plan to raise your rate, at which time you should verify the accuracy of the information on which the insurer relied. To protect your credit standing, pay your bills on time and keep your credit balances as low as possible. Check your credit record for errors on a regular basis and have them corrected promptly so that your record remains accurate.
If you've kept your coverage with a company for several years, you may receive a special discount for being a long-term policyholder. Some insurers will reduce their premiums by 5 percent if you stay with them for three to five years and by 10 percent if you remain a policyholder for six years or more. But it is still worth shopping around periodically.
Carefully Consider a Claim
The three biggest red flag claims that will likely result in higher premiums are water damage (largely because of the cost of mold remediation), slip-and-fall accident and dog bite. Other than these, filing a single claim on your policy will probably not result in a rate increase. However, filing two claims in a three-year period could trigger a hike, depending on the company. Many companies base their decisions on how long you've been with the company and the nature of the claims.
Yes, it’ll cost you time, but you could save a lot of money. Ask your family and friends, Google, or contact your state insurance department. The National Association of Insurance Commissioners offers lots of information, including complaints, to help you choose an insurer in your state. States often make information available on typical rates charged by major insurers and many states provide the frequency of consumer complaints by company.
And don't consider price alone. Review consumer complaints carefully and try talking to a few insurers to get a feeling for the type of service they provide and ask how they can lower your costs. Also check the financial stability of the companies you are considering with rating companies such as A.M. Best and Standard & Poor’s. Once you’ve narrowed it down to three insurers, get price quotes.
Do Your Homework If You’re House Hunting
You could save on insurance if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. It might also be cheaper if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live on the East Coast, consider a more wind-resistant brick home. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.
Additionally, if you are thinking of buying a particular home, check the Comprehensive Loss Underwriting Exchange or Automated Property Loss Underwriting System report before you commit to anything. These reports contain the insurance claim history of the property and can help you gauge its risk.