Ultimate Guide to Saving on Homeowners’ Insurance
Homeowners’ insurance is truly a necessity for any homeowner, whether you’re carrying a mortgage or own your home outright.
Home repairs and damages can be incredibly costly. Homeowners’ insurance can defray most, if not all, of the expenses associated with a mishap – depending, of course, on the nature of the damage and the kinds of coverage included in your homeowners’ policy. If a leaky pipe causes water damage inside your ceiling or a storm causes a tree to fall on your roof, you’ll be glad you have it.
However, just because homeowners’ insurance is necessary doesn’t mean you should overpay for it.
The homeowners’ insurance industry isn’t quite as competitive as the auto insurance industry, so cutting costs takes a little work, but it’s work worth doing, especially if you’re not independently wealthy. (And if you are independently wealthy…well, I applaud your frugality!)
To get you started, here are a few easy, low effort ways to start saving money right away:
Simple Ways to Save
Bundle policies for easy savings
As you’ve probably noticed from the constant advertisements, auto insurance is a very competitive market. Insurers are battling for the hearts and wallets of car owners and you can use that to your advantage when looking for cheaper home insurance.
Because cars move and houses don’t (or at least most of them don’t), cars are riskier. The riskier something is, the more an insurer will charge to cover it. As enticement to get you buy their automobile coverage, insurers will often offer to bundle that coverage with your home insurance at a discount.
Companies love to bundle products together for the simple reason that selling you more is almost always better than selling you less. It’s why nearly every fast food restaurant in the world offers “meals” or “combos” for less than the sum of their parts. They’d rather you bought a burger, fries, and a drink for $6, than just a burger and fries for $5. The same principle applies to insurance companies – they want to buy more, not less, and they’ll give you a deal on the individual coverages to make it happen.
Tips for bundling
Do your research. Don’t assume a bundle is a deal just because it’s a bundle. Understand the usual costs for the coverages included.
Take only what you need. The allure of the bundle is “more for less,” but that can become self-defeating if you start adding coverages you don’t need. A $0.50 apple pie isn’t a good deal if you didn’t actually want an apple pie.
Push for more. A customer buying more than one type of insurance is a beautiful butterfly to an insurance agent. Don’t give away your negotiating power, though. It’s worth your while to see if they can do a little bit better.
Don’t leave discounts on the table
Are you cashing in on all the discounts available to you? Different insurance companies offer different discounts so you may need to do a little work here to find all the discounts you can use.
There are basic discounts available for keeping your home safe. These may include having an alarm system, extra smoke detectors, stronger bolt locks, and being a non-smoker. How you pay could save you money – some insurers offer discounts for simply setting up automated payments or paying your full six month premium upfront.
You may also be eligible for a discount if you don’t file a claim over a certain period of time. Generally, it’s a good idea to be caution about filing claims. If you can comfortably pay out of pocket, consider doing that instead of filing a claim. It may seem silly to pay for insurance that you rarely use, but it’s probably better in the long run to file fewer claims.
Higher deductible, lower premium
A low deductible (the amount you pay out of pocket when filing an insurance claim) usually means a higher premium or monthly payment. Consider raising your deductible in order to reduce your monthly or yearly payment for your insurance. This can end up saving you thousands of dollars, especially if you don’t end up needing to file a claim for a while.
Many people live in their homes for 10-15 years or more before ever having to file their first claim. With a higher deductible, that can equate to thousands of dollars that can be better used for your retirement or investment accounts.
One very important thing to keep in mind though . . . if you’re going to raise your deductible, make sure to set aside enough money to cover that big deductible should disaster strike. You can use the savings from your reduced premium to fund your deductible.
How much insurance do you really need?
Now that we’ve looked into some of the easiest ways you can reduce your premiums, let’s consider the possibility that you may be paying for more coverage than you really need. Since we never really know when we’ll need insurance, what we’ll need it for, and how much we’ll need to have covered, most people tend to plan for the worst-case scenario. But there’s really no benefit in paying for insurance you simply don’t need.
Let’s begin by breaking down what’s (usually) included in your homeowners’ policy:
Dwelling (aka the house itself)
The dwelling coverage covers the house itself. This is what will be used to pay for repairs to the structure.
How much do you need?
You need enough to cover the cost of replacing your home. Keep in mind that your mortgage and your home’s market value are not the same as the cost to completely replace your home in the event of a disaster. The cost of building materials, labor, and other factors change over time. Over time, your home will likely cost more to rebuild than when it was first built. Because of this, it’s a good idea to get a new replacement estimate once every 5-10 years to make sure your coverage is enough to rebuild your home in a worst-case scenario.
Note: standard homeowners’ insurance does not cover damage caused by flooding or earthquakes. It’s also quite possible that you will need additional coverage for things like hail or wind damage. This will depend on where you live and the associated risk factors. Be sure that you have the right kind and amount of coverage for your area. If you’re not sure, you can always check the FEMA guide to flood insurance.
This covers any buildings or structures on your property that are not attached to your house. Some examples would be a shed, a fence, a detached garage or carport, or a gazebo. When reviewing your coverage levels for these other structures, be sure they match the actual replacement value. If you’re not sure, do your research. Take a visit to your local home improvement store and price a new shed or fence. Ask a contractor to give you an estimate for a replacement garage or gazebo.
Similarly, if you have any unattached structures on your property that have fallen into disrepair and you don’t plan on replacing these structures, consider reducing or dropping the associated coverage.
This includes all the personal property inside your house: jewelry, computers, televisions, stereos, and anything else of value. It’s important that you have the right amount of replacement coverage for these items. It may seem like a real chore, but keeping track of your valuables – including their current value and when/where they were purchased – is an easy way to make sure you have enough coverage. This will also help to expedite the claims process. Taking photos of these items is also helpful as it provides proof of ownership.
If you don’t have the time or energy for tracking all of these records, experts tend to recommend that your personal possessions coverage be at least 50 percent of the value of your dwelling coverage.
Have you sold or given away a significant number of valuables or possessions lately? Review your personal possessions coverage and reduce if appropriate.
Loss of Use
This coverage provides funds to help you out if you’re displaced from your home. In the case of a fire or hurricane, it will help you to be able to stay in a hotel or temporary housing until you can get back into your home or have your home rebuilt, depending on the amount of damage.
It can also be used to cover “additional” expenses resulting from your displacement. For instance, if you have to travel farther because of damage to your home, your loss of use coverage can be used to pay for the difference between what it would normally cost to commute and how much it costs while your home is uninhabitable.
This is a relatively inexpensive form of coverage, but if you live close to family and don’t foresee needing to pay for temporary housing in an emergency, you could potentially go without it.
This protects you in the case that someone is hurt or injured on your property. If you’re sued for damages and lose, your personal liability insurance will cover you (up to the policy limit).
If you don’t have adequate liability coverage, your assets could be at risk in the event you’re sued. The higher your income and the more valuable your assets, the more personal liability coverage you need. Your coverage for personal liability should also be higher if you have more risk factors, such as owning a pool, having frequent guests at your homes, having multiple floors to your home, and an owning an older home.
This covers the medical bills should you or someone else get injured in your home or on your property. Health insurance doesn’t always cover all of the medical bills associated with these injuries so it’s important to have this added coverage.
When pricing the premiums for these coverages, it’s important to shop around. And it’s important to do it regularly, at least once every few years. People tend to live in their homes for years, even decades, but they don’t usually take the time to shop their homeowners’ policy for a better rate.
Strange as it may seem, loyalty is not always in your favor. New customers tend to get the better deals in order to secure their business. And different insurance companies weigh your risk factors differently so it’s worth the time and hassle to shop around and see what else may be available. Even if you only talk to one other insurance company, you’ve at least given yourself the opportunity to save. Doing nothing means you have no chance of saving.
Reduce risk, reduce costs
As with any type of insurance, the greater the risk factor for the insurance company, the higher your premium will be. The more you are able to do to reduce your risk factor, the more money you’ll be able to save on your insurance.
In some cases, reducing your risk may require an investment up front that will eventually pay off in the long run. Before making the investment though, it’s a good idea to weigh the benefits. How much will it reduce your premium and what will that savings add up to over a year? Will it improve the resale value of your home? Keep in mind, this is not an immediate fix to lowering your premiums, but a gradual way to reduce your costs over time.
Here are a few improvements you can make that will help to reduce your insurance premiums and add to the resale value of your home:
Replacing, repairing, or upgrading your roof can reduce the risk of storm damage and water leaks that can cause numerous problems throughout your home. Roofs are an expensive replacement though, averaging $8000-$12,000 for a 2000 sq. ft home. It’s important to weigh this cost against the savings and resale value to be sure it’s worth it.
Adding a security system is an easy improvement that can lead to a lower premium. Even something as simple as adding a new, high security deadbolt can have a positive impact on your insurance. The harder you make it for a potential thief to break in to your home, the more savings you’ll receive. Insurance companies assess your home for risk factors and potential future claims. If they feel you are less likely to file a burglary claim because of the security in your home, you may be eligible for a discount.
Upgrading Your Systems
Faulty wiring, leaky pipes, and heating or AC units that are out of date can all lead to potential hazards in your home that can lead to expensive insurance claims. Upgrading or improving these systems will make your home safer and can significantly reduce the risk of an unexpected catastrophe. Any major upgrade will be expensive, but could have additional benefits, including increased energy efficiency and improved resale value.
Protecting Against Natural Disasters
If you live in an area that is prone to earthquakes, making sure that your home is securely attached to the foundation is important. Likewise, if you live in a hurricane zone, making sure that you have hurricane shutters and hurricane-resistant siding can help to protect your home during a storm. The more you can do to protect your home from natural disasters, including freezing temperatures and wildfires, the lower the risks and the lower the premium.
Better credit = better offers
If all else fails or you’re still looking for ways to save, it’s time to look at your credit rating. Most insurance companies use your credit score as a factor in determining your coverage terms and premiums. An excellent credit score can make a difference in how much you pay your insurance company.
There are three simple ways to build strong credit:
- Make all your payments on time. If possible, pay off your credit card and utility bill balances every month so you don’t get hit with interest fees. Plus, a zero balance helps to improve your score.
- Don’t overextend yourself or use all of your available credit. Try to keep your balances under 50% of your credit limit.
- Find the right card for you then stick with it. Don’t open several accounts over a short period of time, stick with as few as possible. The age of your open accounts and the number of accounts you have are part of your credit score calculation. Older, established accounts are better than new ones.
Finally, it’s unfortunate but true – some homes are just more expensive to maintain and insure. If your home is old, large, in a remote area that is not easily accessible to emergency responders, situated in a “dangerous” area, or built in a flood zone, your insurance is going to be high.
You may also want to consider if owning a home is the best option for your budget. Consider the costs of renting vs. owning in your area. While your home is a greater asset, it may be more expensive than you can handle. Renting means you pay a much lower insurance premium for renters’ insurance and someone else is in charge of all the repairs.
Saving money on home insurance requires a little legwork and willingness to be honest with yourself. If it feels daunting, just remember that there are worse things than phone calls with insurance agents – things like crushing debt and an empty savings account.