(Courtesy of the Insurance Information Institute)
Here are some things to consider when buying homeowners insurance:
The insurance industry is a very competitive business and the price you pay for your homeowners insurance can vary by hundreds of dollars, depending on the insurance company you buy your policy from. Companies offer several types of discounts, but they do not offer the same discount or the same amount of discount in all states. That is why you should ask your agent or company representative about any discounts available to you. Here are some things to consider when buying homeowners insurance.
- Shop around.
Shopping around for the best insurance policy may take a few phone calls, but it could save you a good sum of money. Ask your friends, check the yellow pages or call your state insurance department. Also check consumer guides, insurance agents, and companies. This will give you an idea of price ranges and tell you which companies or agents have the lowest prices. But do not consider price alone. The insurer you select should offer both a fair price and excellent service. Quality service may cost a bit more, but it provides added conveniences, so talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial ratings of the companies, too. Then, when you have narrowed the field to three insurers, get price quotes.
- Raise your deductible.
A deductible is the amount of money you have to pay toward a loss before your insurance company starts to pay, according to the terms of your policy. Deductibles on homeowners’ policies typically start at $250. By increasing your deductible to $500, you could save up to 12 percent on your overall policy; $1,000, up to 24 percent; $2,500, up to 30 percent; and $5,000, up to 37 percent, depending, of course, on your insurance company.
- Buy your home and auto policies from the same insurer.
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.
- Consider how much it will cost to insure the house.
Because a new home’s electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house, insurers may offer you a discount of 8 to 15 percent if your house is new. You will also want to check the construction. Brick, because of its resistance to wind damage is better in the East; frame, because of its resistance to earthquake damage, is better in the West. Choosing wisely could cut your premium by 5 to 15 percent.
Homeowners insurance does not cover flood-related damage, so if you do buy a house in a flood-prone area you’ll have to buy a flood insurance policy in addition to your homeowner’s policy. Avoiding areas that are prone to floods can save you $400 or so a year for flood insurance. Does your town have full-time or volunteer fire service? Is your house close to a hydrant or fire station? The closer your house is to firefighters and their equipment, the lower your premium will be.
- Insure your house, not the land.
The land under your house is not at risk for theft, windstorm, fire and the other perils covered in your homeowner’s policy. Do not include its value when deciding how much homeowners insurance to buy. If you do, you’ll pay a higher premium than you should.
- Beef up your home security.
You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks in your home. 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 station or other monitoring facility. These systems are not cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends and how much the device would cost and how much you would save on premiums.
- Stop smoking.
Smoking accounts for more than 23,000 residential fires a year; that is why some insurers offer to reduce premiums if all the residents in a house do not smoke.
- Re-evaluate your policy once you retire.
Retired people stay at home more and spot fires sooner than working people. Retired people have more time for maintaining their homes, too. If you are at least 55 years old and retired, you may qualify for a discount of up to ten percent at some companies.
- Look into group coverage.
Alumni and business associations often work out an insurance package with an insurance company, which includes a discount for association members. Ask your association’s director if an insurer is offering a discount on homeowners insurance to you and your fellow graduates or colleagues.
- Stay loyal to your insurer.
If you have kept your coverage with a company for several years, you may receive special consideration. Several 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.
- Compare 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 or additions to your home, but you do not want to spend money for coverage you do not need. If your five-year-old fur coat is no longer worth the $20,000 you paid for it, you’ll want to reduce your floater and pocket the difference.
- Look at the private market.
If you live in a high-risk area that is especially vulnerable to coastal storms, fires, or crime, and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.