If you own a home, homeowner’s insurance is a necessity. You hope you don’t need it and the premiums are never pleasant, but you’ll be glad you have it if you need to make a claim. That’s the purpose of insurance.
I know many clients I work with are frustrated with rising premiums even though they have never made a claim and are often unsure of what is reasonable. The levels of coverage and premiums will vary by insurer and location. In any event, there are steps you can take to avoid overpaying for your homeowner’s insurance.
1. Consider a higher deductible.
When you have a claim, your deductible determines how much of the loss you need to cover yourself. The more you agree to cover, the lower your insurance premiums are. Raising your deductible from $500 to $1000 might save you up to 20% on your premiums as noted in a Kiplinger article last year. Another reason to bump up your deductible is that many people will not file a claim for $500 anyway, because they know that if they do, their rates are likely to increase. You should investigate the cost savings before making a final decision.
2. Do you have too much insurance?
Keep in mind that the amount of money you pay for your house isn’t necessarily the same as what it would cost to replace it. For example, if you bought a detached single family home for $300,000 and you have a $300,000 insurance policy, you may be paying too much for insurance. Consider that when you purchased your home, you were purchasing the land as well as the building. You already own the land so you only need enough insurance to cover the cost to rebuild. It’s important to understand the difference between market value and replacement value. Guaranteed replacement value or basic replacement value forms of coverage are the most common and usually the standard if you have a mortgage. But market value types of coverage and set dollar amounts are also possible to some home owners. Be aware that many companies use a set formula that they apply across the board to increase annual replacement coverage levels and premiums. If it seems your coverage levels exceed what it would cost to replace your home and the increases are growing disproportionately, contact the insurer to challenge the increase.
3. Look at bundling policies if the terms of coverage are equal.
If you have more than one type of insurance policy with the same company, you may be eligible for discounts on each policy. An example would be if you had homeowner’s insurance, auto insurance, and life insurance all with the same company. If that were the case, you would likely be eligible for discounts on each policy. However, just because the premiums may be lower than going a la carte, be sure you are comparing coverage levels on an apples to apples basis, not just the discount. Personally, by separating our coverage, I have been able to obtain better coverage for the same amount offered through a discount. This can change over time so the important thing is to compare annually.
4. Enhance your home security.
A good home security system can help you save money on your homeowner’s insurance. One of the ways insurance companies determine your rates is to assess the amount of risk they take when they issue a policy. If you lower your perceived risk, you can also reduce your rates. Statistics show that homes with a security system are burglarized less often than homes without them. The insurance companies know this and they should offer you lower rates if you have a good security system.
5. Ask about other discounts that might be available.
Most insurance companies offer a number of discounts based on varying criteria. Call your insurance agent and ask if you’re eligible for any discounts.
6. Shop around for the best deal.
One of the easiest ways to save money is to do some comparison shopping. There are countless insurance companies competing for your business. Whenever there’s more than one company offering the same product or service, you’ll likely find price variations. By doing some comparison shopping, you’re likely to find a company that’s offering the coverage you need at the best possible price.