Homeowner's Insurance: Cut Your Premium in Half

Fire, flood, earthquakes, hurricanes, wind, falling trees, and burst water pipes are just some of the villains that could damage or destroy your home and its contents. Or maybe someone will trip not so lightly down your stairs and decide to sue.  Don't forget about thieves, who could ransack your abode and steal your valuables.

Whether you own or rent a raised ranch, brownstone, McMansion, or two-bedroom condo, having the right kind of home insurance – and enough of it – is both costly and vital. Yet with a little effort, you can cut your premium in half. But first …

Make the Crucial Decision to Spend More

Most policies cover homes and personal property (the items inside your home) for "actual cash value” which is based on what they’d be worth today, considering wear and tear. If the roof is 12 years old, it will be valued at that amount – not what it will cost you get a new roof.

To insure the full cost of replacing your home and possessions, you need to buy a more expensive "guaranteed replacement cost" policy. While it will run you in the range of 10% to 15% more, virtually every personal finance expert we've come across recommends guaranteed replacement cost coverage for your home and belongings.

If you have a cash value policy and disaster strikes, the check you get from the insurer will be for a lot less than you’ll need to rebuild. Think about that roof. Every house in the neighborhood needs a new one. There’s a high demand for roofers, the cost of labor and materials has gone up … and if you’ve got a cash value policy, you’ll only get reimbursed for the value of your 12 year old roof. Yet it will probably cost you thousands more to get a new one. Yikes!

With cash value coverage, you’ll take a hit on your personal property losses as well, since you'll only be reimbursed for the depreciated value of each piece of personal property.  For example, consider a couch that cost $1,000 when it was purchased 10 years ago. With a cash value policy, you might only get $500 for it – regardless of what it might cost to buy a couch like the one you lost.

Is It Really Guaranteed Replacement Cost?

You might think that if you spend the extra 10% to 15% for guaranteed replacement cost insurance, the policy will actually pay the entire replacement cost. Not necessarily. Some companies will pay the actual replacement cost; others limit their payment to 125% or 150% of the face value. Be sure you know exactly how your policy defines this coverage.

A ballpark figure on your home's value is a useful starting place, but that won’t tell you how much it’s going to cost to rebuild. You'd be wise to get a professional estimate of the replacement cost of your home – not its market value. Ask insurers, get a friendly local builder to give an estimate based on current local conditions, and crunch the numbers with an online replacement cost calculator.  Then insure your home for 100% of its replacement cost.

Also be sure that your policy has automatic inflation protection, which increases its face value each year based upon construction costs in your area. It's another way to make sure your home remains sufficiently insured.

Although they're not identical, home insurance policies are standardized to some extent. Still, they can be complicated. Before signing on the dotted line, take the time to understand what the various policies will cover and what they won't.

Renter Alert!

If you're like most people who rent, you probably don't have home insurance. That could prove very costly. Your landlord's policy will not protect your possessions against loss or damage. Nor will it protect you against personal liability if, say, your babysitter trips on the rug and sues you. Yet according to the Independent Insurance Agents & Brokers of America, it only costs $12 per month for about $30,000 of property coverage and $100,000 of liability coverage.

The tips we offer here for homeowners can also help renters find the best deal on a policy. Also check out the Insurance Information Institute's online guide to renter's insurance.

Cut Your Premium by 50 Percent

It's well worth investing the time to lower your home insurance costs. With a little effort, you really can cut your premium by as much as 50 percent, not just this year, but for years to come. Of course, in certain parts of the country, homeowner’s insurance rates are going up and up. If you live along a coastline, for example, your costs are going to be high no matter what you do. It’s all the more important for you to follow these steps. The more you do what we suggest here, the more you’ll save.

1. Make sure you look your best on paper. Insurers believe that reliable bill payers file fewer claims, which is of course what they want. So check your credit report for accuracy and get errors fixed. Otherwise, you will pay more and may even be denied coverage.

2. Don’t be clueless. Before agreeing to give you a policy, insurance companies check to see if you have a history of filing claims – even small ones, like for theft or fire. Insurers get these claims history reports primarily from Choice Point's Comprehensive Loss Underwriting Exchange (CLUE), and they raise rates and deny coverage based upon information in CLUE reports. Get a copy of yours, and if there are mistakes, get them corrected. Then have the insurance company take a second look.

Tip: Consider covering some claims on your own – or even withdrawing a claim you've made – to avoid falling into the bad risk zone. Ask your insurance agent for some guidance on this. (Don't blame us, we're just the messengers!)

3. Shop around. Policies are not identical. Costs, coverage, and conditions can vary as can the financial stability of the insurer. Compare coverage and prices for your home and belongings.. Start with a couple of sites that will get you multiple quotes, for example, Insure.com and Insweb . But don’t stop there. Make sure you get quotes from a range of insurers, including:

• “Independent” agents, who sell the policies of several different insurance companies. While they can help you get the best deal among the insurers they handle, their commission structure is the highest. Still, there are often benefits to working locally with someone who you know and can contact quickly in an emergency. But even if all you want to do is look at the pros and cons – say, of registering your kid's car at school or at home – a good independent agent should help you figure out what makes sense. Your best bet is going to be to ask friends and relatives for recommendations of local independents they've worked with and liked.
• “Captive sellers,” who work for a single insurance company such as Allstate and State Farm – companies that have their own sales forces. Their commissions are typically lower than those of the independent agents, so you may pay a bit less for your policy.
• ”Direct writers,” who can give you a quote on the phone or online. They can generally offer the lowest-priced policies because they sidestep commission fees. Examples: Amica (800-242-6422) and GEICO (800-841-2964). Members of the military and their families should definitely consider USAA (800-531-8080).  Be aware, though, that direct writers tend to be the choosiest. If you have anything that hints at a real risk (a wood stove, for example), it's quite possible they'll say, "No thanks."

4. Go for the highest deductible you can afford. Compare quotes for the replacement value of your home and its contents with different deductibles, say, $500 and $1,000. They’ll shave 10% to 25% off your premium annually. If you can go for a still higher amount of $2,500 or $5,000, your annual savings will be 30% or higher.

5. Put smoke and carbon monoxide detectors on every floor, and make sure the agent knows about them. A smoke detector may not only save a life, it will pay for itself in a year or two with the 2% to 5% that it will save you on premiums.

6. Get fire extinguishers, deadbolt locks for all the doors, and consider other safety devices. Ask if there are other low-cost safety features that might save even more money on the policy. And depending on the location and condition of your home, you may want to invest in costlier fire and theft protection. Fire sprinklers, anyone? They can save you money – although a home security system that’s connected to the local police and fire departments can save you more, in the range of 15% to 20% annually.

7. Ask the agent or company that writes your car insurance for a “multiple policy” discount. Find out if you’re eligible for a price reduction if you let them write both your home and car insurance. You could save 10% to 20%. Also ask other insurers what their multiple policy discounts are.

8. Be loyal – if it’ll save you money! Many insurers reward good customers to keep them. Does yours offer discounts to long-time customers? Ask!

9. Get money off for "good behavior." Have you been claim-free for a few years? Some companies offer discounts from 2% to 5%.

10. Are you retired? Some companies offer retirees discounts of 10% to 20%.

11. Be sure to ask about all possible other discounts. Here's a handy checklist:

• Was your home built with fire-resistant materials?
• Is yours a non-smoking household?
• Got a newish house, built with state-of-the-art construction materials? If so, it should cost less to insure.
• Recently renovated? You might be eligible for a price break – but if you made a significant improvement, you may need additional coverage.
• If you normally keep some of your gems in a safe deposit box, and if they're worth more than the standard policy limits, ask if you would be eligible for a discount.
• Does your membership in an organization – whether it's AARP, AAA, a labor union, or an alumni group – make you eligible for a discount?
• Insuring a second home? See if you can get a multiple policy discount. You might need to accept less coverage for the contents of your second home or install an alarm system.

Protect Yourself from Mother Nature

Even though some 25% to 30% of flood insurance claims come from areas that weren't considered to be high risk, basic policies don't cover floods. For more information, contact the National Flood Insurance Program (888) FLOOD29.

And even though California is the likeliest spot for earthquakes, they’ve occurred in 39 states. You’ll find excellent information on quakes, hurricanes, tornadoes, ice damage, wildfires, and floods at Insweb .

Home Is Where the Art Is

You'll have the least grief with a claim if you keep receipts, obtain written appraisals for anything of substantial value, and create a detailed inventory of your possessions. Now. Before the storm hits.

A detailed list of your belongings can also help you figure out how much coverage you really need. Then, down the road, if you file a homeowner's claim, you'll have the documentation in hand.

Major categories mentioned often by insurers include jewelry, cash, art, furniture, appliances, electrical equipment, heirlooms, rugs, and clothing. Keep an up-to-date copy of your list in a safe place, such as a safe deposit box, at your office or with your attorney.

You want a formal, detailed inventory with careful descriptions of your pricey belongings, brand names, receipts, dates of purchase, professional appraisals, and photo or video records. Don't forget to update your inventory periodically to cover new purchases. 

For More Information

The Insurance Information Institute answers key questions on homeowner’s insurance and provides referrals for resources both on its site and through the National Insurance Consumer Helpline: 800-942-4242.

Insure.com has in-depth coverage on a wide range of home insurance topics – ranging from burglary prevention tips and coverage for catastrophic events to insurance protection for laptops and landscaping. You'll also find advice on filing claims along with claims phone numbers for the major insurers.

State insurance regulators offer lots of helpful consumer information on home insurance and insurers. Visit the National Association of Insurance Commissioners for your state regulator’s address, phone number, and web site – as well as for other useful information.

Listen for a Heartbeat

Before you put your home and belongings in the hands of an insurer, find out how healthy it is. Here are two sites that provide ratings for free: Standard & Poor's and Moodys . (You have to register at each site, but once you do, their information is free.)

Also important is customer satisfaction. You want a company that pays claims promptly without lots of hassles. Click here to look at complaint information on home insurers.

____________________
*Nancy Castleman has been sharing ways to get out of debt, save money, and live better on less since 1984. For more of her ideas, visit her Web site, Good Advice Press.

Return to Top