Homeowners insurance is based on replacement cost, so it’s dangerous to try to save a few bucks by cutting back on the amount of your coverage. Besides, there are much better ways to lower your costs. Here are some tips on how to do that:
Prices vary from company to company, so shop around. A study some years back by the Consumer’s Checkbook, the Washington, D.C., area’s version of Consumer Reports, found that premiums vary by as much as $300 from one insurer to another for the exact same coverage.
How’s Your Credit?
For years, rates were based mostly on the location and age of the property and distance from the nearest firehouse — or even fire hydrant. Now, insurance companies also consider your credit, or insurance, score. So pay your bills on time and maintain your score at the highest level possible.
Insurance is for major claims that you can’t pay out-of-pocket — in other words, losses from which you cannot recover on your own. So avoid those small “nuisance” claims for minor incidents you can take care of. Valid or not, the more claims you file, the more you will be charged.
As a general rule, the more the policy covers, the higher the premium. And conversely, the more risk you take on, the lower the cost. So consider raising the deductible, which is the amount of loss you will cover before insurance kicks in.
Don’t raise the deductible so high that you can’t afford to take the hit. Remember, the purpose of insurance is to protect you from losses you can’t handle on your own.
At the same time, though, the Insurance Information Institute suggests that raising your deductible from $250 to $500 could cut your annual premium by 10 percent. And boosting it to $1,000 could save 20 percent.
Many insurers will knock off anywhere from 2 percent to 15 percent of their premiums if you install safety devices to protect your palace against fire and burglary. Not all companies offer discounts, and not every company offers the same ones in the same amounts or in all states, so again, you have to shop.
Deadbolt locks and smoke alarms are pretty standard. But if you have a security system that rings through to the local fire station or a central alarm monitoring company, a markdown may be available. The same goes for an interior sprinkler system or possibly even if you are willing to mark your valuable electronic equipment with personal identification numbers.
Other discounts may be available for non-smokers, senior citizens or your proximity to the nearest first responders. Also, you may get a break if you’ve been a policyholder for any length of time, say six years or longer. And if you buy all of your insurance from the same company — auto, home, boat, etc. — a discount may be available. Ditto if you buy your policy as part of a group or club.
Most policies set dollar limits on such personal property as jewelry, cameras, furs, artwork, computers, and the like. So you’ll have to purchase a rider or floater to cover them for full value. So, if the value isn’t what it once was — furs are out of style and cameras seem to be obsolescent within a few years — check your coverage and reduce or cancel the rider to put a few extra dollars in your pocket.
Take a comprehensive inventory of your household goods and possessions — both list and video. Going room by room will help you determine if coverage is adequate or if you’ll need more or less. And, it will save you a significant amount of both heartache and headaches if you ever have to file a claim.
Many carriers view certain breeds of dogs as high risk and won’t cover homes in which they reside. The breeds considered high liability risks are pit bulls, German shepherds, and Dobermans. But one Northern Virginia homebuyer was once turned down for coverage the day before closing because he owned an English bulldog puppy.
Land doesn’t burn, and it can’t be stolen, at least not in the sense that someone can put it in his pocket and walk away with it. So don’t insure it for fire or loss. Figure out what the value of the home’s lot is as part of the property’s overall value. Then deduct it and insure for the remainder. In other words, if the house costs $300,000 and the lot is worth $50,000, insure the house for $250,000.
Finally, a warning: While price is always a key determinate, there are other factors that go into choosing an insurer. You want one that is financially sound, takes the time to answer all your questions and handles claims fairly and quickly. And you want to be sure the company is not prone to cutting loose anyone and everyone who files even the smallest of claims.
You can check the financial health of various carriers with rating companies such as A.M. Best and Standard & Poors. Also check with various consumer guides and friends and relatives about their experiences.
Lew Sichelman is a nationally syndicated housing and real estate columnist. He has covered the real estate beat for more than 50 years.