Homeowners insurance can be expensive, but unfortunately for most people it is one of those “necessary evils” for protecting what is probably their most valuable asset. The home often represents an individual’s primary method of building wealth and investing for retirement. Therefore, it pays to take the necessary steps to protect this valuable asset from damage in spite of the cost. Insuring your home doesn’t have to bankrupt you, however. There are a number of relatively simple ways to save on homeowners insurance.
1. Make sure you have the proper type and amount of coverage
Much like an automobile, an insurance policy will generally come with some standard or “built in” coverages to which various “options” may be added. Take the time to review your policy and make sure that you understand the purpose of any options that have been added so that you can be sure that they are appropriate. You may not want to carry increased hurricane limits if you live in Arizona or additional earthquake coverage for a home in Maine. If you no longer have that home based business make sure to remove any optional business related coverages from your policy.
Also, be sure to check the amount of coverage on your home. The purchase price or the market value of your home, which usually factors in location and the price of the land itself, is not necessarily the same as the amount required to repair or rebuild the home in the event of a loss. Be sure to work closely with your insurance agent, broker or a professional appraiser for help in selecting the appropriate amount of coverage for your home. Over insuring can result in unnecessary expenses.
2. Maintain favorable credit and homeowner claim histories
Many insurance companies are beginning to use credit characteristics, prior homeowner loss history or some combination of both as factors in determining insurance premiums. Not all states currently insurance premiums to be based on credit factors and/or prior losses. But in states that where this is allowed having a favorable credit score and few claims can make a significant difference in the amount you pay for your insurance.
Some basic tips include:
Pay bills on time
Obtain a free credit report each year, notify the credit bureau of any discrepancies or errors and make sure that those errors are corrected
Try to avoid filing trivial claims. Remember that homeowners insurance is mainly designed for catastrophic losses. Many companies will give hefty discounts if you remain claim free for a given period of time
3. Choose a higher deductible
Companies generally charge much more for lower level deductibles. Choosing a deductible of at least $1000 can result in significant savings on a home of moderate value. For higher valued homes of $1,000,000 or more you may want to consider a $5000 or $10000 deductibles or one of the newer percentage deductibles.
Percentage deductibles are calculated as a percentage of the home’s insured value at the time of the loss. For example, on a home insured for $1,000,000 with a 1% deductible, the company would only pay once the loss exceeded $10,000 or 1% of $1,000,000.
Even though a $10,000 deductible might sound excessive, you need to remember that higher deductibles such as these have been shown to reduce insurance costs by as much as 35 to 50%.
4. Purchase multiple policies from the same insurance company
Companies will often offer discounts on both homeowners and automobile policies to customers who insure their homes and cars together. Others will offer additional discounts for each additional policy issued for the same household. Try to consolidate all your insurance coverage with one company whenever possible for maximum savings.
5. Ask about loyalty discounts
Although while it sometimes pays to shop around for insurance every year in search of a better deal, first make sure that you won’t be missing out on a “loyalty” discount for customers who stay with the company for 3 or more consecutive years. In some cases these discounts will continue to increase over time so make sure that you aren’t “jumping ship” too soon.
6. Make home improvements
Certain upgrades and improvements to your home not only increase its market value but may also result in significant insurance savings as well. Companies will vary in the upgrades that are eligible so be sure to check with your agent or broker on specifics, but some commonly discounted upgrades may include:
Installing an impact resistant roof. This will apply mostly in areas prone to hail damage and you may be required to submit written documentation from the roofing contractor who did the work
Update utilities. Updating the plumbing, electrical and heating and air-conditioning systems can result in significant savings
Install a fire and/or burglar alarm. Security systems, especially those that are monitored by a centrally located security station or those that dial police and fire departments automatically are preferred. However, smaller discounts may also be given for having deadbolt locks, smoke alarms, local burglar alarms and fire extinguishers
Install interior automatic sprinklers. Although generally more common in commercial buildings, automatic sprinklers are gaining in popularity for home use and can result in significant insurance savings
7. Consider an Actual Cash Value policy vs. Replacement Cost
Actual cash value (ACV) policies allow the insurance company to consider depreciation when replacing items after a loss in exchange for a lower premium. While this option is not appropriate for everyone it can be helpful in lowering insurance costs.
One example might be the college student who is renting an apartment that is furnished with items he or she bought secondhand. If the student thinks that he would replace any lost or damaged items with thrift store or garage sale purchases instead of buying new, an ACV policy could be a good deal.
Choosing an ACV policy should be considered carefully. It would be best to discuss the pros and cons of this option with a professional insurance agent or broker to decide if it may be right for you.
8. Take advantage of payment plan options
Homeowners insurance is generally written for a term of at least one year, with the full premium due up front. However, many companies do offer alternative payment plans. While a payment plan may not necessarily reduce the overall cost of insurance paying quarterly or even monthly may offer greater convenience than paying a large, lump sum once per year.
9. Consider companies that offer discounts based on membership in a particular group.
Sometimes organizations like Automobile Clubs or fraternal or religious organizations will offer insurance discounts to their members. Remember to inquire about discounts with organizations to which you belong.
10. Other considerations
Shop around and compare price and coverage combinations. Prospective insurance customers should definitely make comparisons but be sure to consider coverage as well as price. Sometimes the less expensive policy is not always the best. If a deeply discounted policy fails to provide the basic and necessary coverage it won’t be much of a bargain if you happen to suffer a loss
Evaluate the insurer’s customer service and claim handling practices in addition to price. Inexpensive companies that have poor customer service and high complaint ratios are no bargain, either. Check the website of your state’s Department of Insurance to find the complaint ratios for insurance companies doing business in your state
Evaluate the insurer’s financial stability. Insurance companies are rated for financial stability. You can check out rating guides published by companies like Standard & Poor’s, A.M. Best or Moody’s to evaluate the financial strength of a potential insurer. These guides are available free of charge at your local library, or at various bookstores. Insure.com also offers an online tool that can provide access to insurance company ratings.
Although insurance can be costly, foregoing coverage altogether is just not a viable option. It is estimated that nearly half of all American adults play the lottery, where the chance of winning a “Mega Millions” Jackpot can be more that 100 million to one. However, insurance actuarial experts estimate the odds of suffering a total loss to one’s home as the result of a house fire are about 500 to one. With those types of odds homeowners should definitely use these cost savings tips and secure insurance on their most important investment. Don’t gamble with your future.
References:
“Can My Insurance Company Go Bankrupt? Insurance Rating and Financial Stability.” http://www.carinsurancerates.com/news/60-is-your-insurance-company-the-next-enron-how-to-make-sure-your-insurer-is-financially-secure.html
“Cost of Homeowners Insurance.” www.moneymatters101.com/insured/costof homeownersinsurance.asp
http://www.insure.com/articles/interactivetools/sandp/newtool1.jsp
“Insurance Company Rating Lookup.” http://www.insure.com/articles/interactivetools/sandp/newtool1.jsp
Lewis, Marilyn. “What Are the Odds?” http://realestate.msn.com/insurance/Article.aspx?cp-documentid=67278
Solomon, Christopher. “Why Poor People Win the Lottery.” http://articles.moneycentral.msn.com/RetirementandWills/RetireEarly/WhyPoorPeopleWinTheLottery.aspx