Eight Ways to Save on Homeowners’ Insurance
When you qualify for a mortgage, your lender will require you to take out insurance to protect the value of your home. Even if you don’t have a mortgage, you will want to protect your more valuable asset with property and casualty insurance that covers your home and its contents.
Homeowners paid an average of $1,173 for home insurance in 2015, the most recent year for which data is available, but costs vary significantly by location. Florida had the highest average homeowners’ insurance premium in 2015 ($1,993), and Oregon had the lowest ($643), according to the Insurance Information Institute.
Standard home insurance policies provide financial protection against loss due to most natural disasters, fire, theft and accidents. Most standard policies include four essential types of coverage: coverage for the structure of your home; coverage for your personal belongings; limited liability protection; and coverage for additional living expenses.
Most standard homeowners’ policies don’t cover damage from a sewer backup, sinkholes, termite damage and business losses. Many property and casualty insurers offer ‘riders,’ or separate policies that provide additional coverage. Homeowners can buy insurance from pest control companies that cover damage from pests and flood insurance is available through FEMA’s flood insurance program or private insurers. Standard home policies have limits on the dollar amount of liability that they cover, but homeowners can buy ‘umbrella’ policies that provide additional liability coverage.
In nineteen states and the District of Columbia, homeowners can buy coverage for hurricanes, tornadoes, and other windstorms. To some degree, depending on the state, insurance companies determine the level of the hurricane or windstorm or wind/hail deductible and where it should apply, except in Florida where state law dictates these variables. Insurers’ hurricane deductible plans must be reviewed by the individual state insurance department where they may be subject to various regulations and laws.
Coverage for earthquake damage is excluded in most property insurance policies, including homeowners and business owners package policies. If you live in an earthquake-prone area like California or Hawaii, you can buy a special earthquake insurance policy or commercial property rider.
Lenders require proof of homeowners’ insurance coverage at closing, so buyers shouldn’t put off learning about homeowner’s insurance and finding an insurance provider. Many buyers don’t shop for the best deal and end up paying more than they need to for coverage to protect their homes.
Here are eight tips that will help you find the best policy for your needs at the best price.
Maintain a good credit rating
Insurers are increasingly using credit information to price homeowners’ insurance policies. If you’re at the point in the home buying process where you are looking for an insurer, you probably have already made an effort to get a lower mortgage rate by working on your credit ratings. If not, take steps now to review your credit history and improve your credit scores.
Shop for quality as well as price. The ‘product’ that you buy with an insurance policy is servicing of claims when you need to it—which may be during a natural disaster or personal catastrophe like a house fire. Ask for recommendations from friends and family based on their experiences. A M Best, a global rating service, rates insurance companies on their solvency and quality of service. Insurance is regulated at the state level. The National Association of Insurance Commissioners (NAIC) maintains a database of state insurance commissioners that includes links to every state’s consumer servers and news on regulatory activities. NAIC also maintains a consumer information service to help consumers shop for insurance services. Several other consumer-oriented websites research and rank insurance companies.
Check out your claims history
Rates for a homeowner applying for coverage reflect the history of claims filed by the homeowner personally as well as the claims history of their home. Insurers use a database called the Comprehensive Loss Underwriting Exchange (CLUE) to check out claims histories. You should take the steps to find out where you stand and correct any errors in your record or your home’s record. A claims-free record will lower your insurance rate.
Consider insurance issues when house hunting
You can save money on homeowners’ insurance by taking into consideration aspects of the home you buy that will impact the rates you will pay. These include proximity to a fire station and a fire hydrant, the age of the home’s electrical, heating and plumbing systems, and wood-burning stoves. Insurers may offer discounts for new homes, safety features such as security systems and smoke detectors, storm shutters that protect windows from wind damage, and households with no smokers. After you have moved in you can get a lower rate by making improvements to the house that make it safer. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire, or other monitoring stations.
Raise your deductible
Auto and home insurance deductibles work differently from those for health plans. Generally, health insurance has an annual deductible, and, once you’ve reached its threshold, the insurer pays for everything else that year, subject to co-payments and co-insurance. With auto and home insurance, the deductible applies to each and every claim, regardless of how many you make during a year. By choosing a higher deductible on your home’s insurance policy, you will save on your monthly premium payments. A higher deductible will also discourage you from filing small claims, which will help to keep your claims history cleaner. Before choosing a higher deductible, you should be confident that you will have the cash available to meet the deductible in a time of crisis.
Don’t over-insure or under-insure
You can save by avoiding costs arising from coverage that you don’t need, but you could lose much more than you save by under-insuring. Don’t make the mistake of assuming that your coverage will automatically adjust to your home’s rising or falling value. Replacement value, or the cost of labor and materials required to rebuild, is what you need to consider. That can be significantly higher than the market price your home will fetch.
Ask your insurer for a customized estimate of your home’s replacement costs, which should take into account its unique features, construction details, age, and any costs of meeting new local building-code requirements. You should review your coverage needs every few years.
Bundle home and auto
Most insurance companies that offer both auto and home insurance will give homeowners a discount if they use the same company for both. “Bundling” makes sense if you are happy with the coverage a company provides for both types of insurance.
Review your rate and coverage before renewing
When your policy is up for renewal, don’t automatically sign up. Many insurers offer a lower rate to attract new customers then raise rates in future years. Others give customers who stick with them a discount of as much as 5 to 10 percent. Before switching, be sure to check out the coverage, quality of service and solvency of the insurer you are considering.
Many lenders who service mortgages will offer to pay your property taxes and insurance with an escrow fund that they set up manage. You will be billed a pro-rated monthly amount to pre-pay insurance and taxes. You will receive an annual accounting of the escrow fund. Paying taxes and insurance with an escrow account ensures that you are never late with a payment.