Times are tough for homeowners. We’ve seen the value of our “nest eggs” (homes) plummet. Jobs are scarce. Our 401k plans are again disappearing as the market is in free fall. If you’re like me, you feel sick to your stomach as you watch your assets dwindling by the day. As you scour your budget for possible places to cut, you might be tempted to forgo one of your bigger payments, namely your homeowner’s insurance premium.
STOP! Don’t do it.
No one ever plans to suffer a loss and submit a claim, sadly it just happens sometimes. And, it seems when you can least afford a catastrophe, one seems to rear its ugly head. That blow, during these already difficult economic times, could be enough to put your financial house in disarray. But instead of completely canceling your homeowner’s insurance policy, as you may be tempted to do, you should consider ways to whittle that premium down to a more manageable payment. I did, and cut my premium dramatically.
Some simple tweaks could save you many hundreds of dollars.
Increase Your Deductible
Changing to a higher deductible is one of the easiest and smartest ways to drastically lower your annual premium. Having a higher deductible simply means that when you have a covered claim, the amount YOU pay out of pocket – before the insurance company pays – is larger. The higher the deductible, the smaller the premium; it’s that simple. However, remember to set the deductible at a level that feels comfortable. One person may be comfortable with a $1,000 deductible and another can live (and sleep at night) with a deductible much higher. It’s very personal. And, did you know that your Insurance Company may chose NOT to renew a policy simply because you made too many claims within a few years? It’s true! With a larger deductible, you are less likely to submit as many claims, thereby lessening the chance of being faced with NON-RENEWAL. Basically you are self-insuring for the small incidentals and simply buying insurance for the major catastrophes that could break you.
Pay annually, rather than monthly
Paying your homeowners insurance premium monthly rather than annually may seem more palatable to your pocket book, but it is most likely costing you a surcharge for that convenience. After all, by paying monthly, the insurance company is incurring extra bookkeeping and mailing costs, and those costs are usually passed on to you. If you can’t afford to pay the entire year’s premium up front, most companies offer small discounts if you set up automated payments from your bank or credit card. If you have a rewards card, consider having your premiums charged to that card, and see your rewards grow faster!
Bundle and Compare
Everyone seems to know this one – bundle your homeowners and auto insurance together and save. However, I want to caution you to one common mistake. Don’t automatically stay with the same company when you add a homeowner’s policy to your existing auto policy. Just because you’ve been getting great rates on your auto policy, doesn’t mean that company will necessarily offer equally competitive homeowners insurance. Some insurance companies may actually decide to effectively price themselves out of certain markets (regions of the country) because of higher incidents of certain perils (ie: floods, tornadoes, etc). I found this to be the case last year, when I was told by an agent “We just can’t be competitive with homeowner’s insurance in Minnesota”. So bundle, but compare too and you will get the best premiums.
And – Comparison shop every few years
Just because you compared rates a number of years ago, doesn’t mean you can’t do better by checking again. Recently, our homeowner’s policy took a huge 30% jump. We’d had no claims, but – upon questioning our agent – we discovered that we our region had experienced high losses. So I checked rates with other companies and was able to keep my premium from rising by switching to another company. My recommendation: Check your rates every three years.
Call your agent before you upgrade your home
If you’re planning to spend a little money on your home, why not consider upgrades that might also decrease your Homeowner’s Insurance premium. Upgraded wiring, new roofs, alarm and sprinkler systems, and new furnaces (amongst other things) may lower your premium. So be proactive, call to your insurance agent BEFORE you do that next project. If, for instance, you plan to re-roof your house, why not ask if there are certain roof types that will result in lower premiums. It may influence your ultimate decision, and save you premium dollars, thereby essentially lowering the cost of that improvement. Many of us consider car insurance premiums before buying, so why not do likewise with home improvements.
Smokers typically spend more to insure their homes, than non-smokers. The reason is simple: “Smoking is the number one cause of preventable home fire deaths. Every year, almost 1,000 smokers and non-smokers are killed in home fires caused by cigarettes and other smoking materials.”(source: U.S. Fire Administration, FEMA). The insurance companies know this. Therefore, they pass on the costs of that increased risk onto those who choose to smoke. If you are a non-smoker, be sure that your insurance company is aware, and ask for a discount. And if not, maybe now would be a good time to try (again) to kick the habit once and for all.
Are you retired?
Most insurance companies will offer discounts to retired homeowners. Yes, there are some perks to getting older! Retired homeowners are more likely to be home, for example, when a pipe bursts, and be available to stop a small problem from becoming huge. Ask your agent for this discount if you think you qualify.
Don’t over insure – it will cost you extra. Most agents can run you through a series of questions, to estimate what the insured value of your home should be. Remember, what you paid for your home, or your tax assessed property value, is usually not the same as the insured value of your home. First, the insured value does not include the land. If God forbid, your home burned to the ground, the land would remain. And, with depressed home values these days, it is highly likely that your insured home value will need to be greater than your county assessed value. Why? It’s because the cost to rebuild most homes, in depressed times, is usually greater than the market values (amount that a home would sell for on the open market). So, be sure you don’t skimp on this, thinking you are appropriately covered, when you indeed may not be.
So instead of throwing the baby with the bath water, so to speak, simple tweaks and adjustments to your Homeowners policy will lesson the bite out of your budget while keeping your biggest investment, your home, properly insured. Rest assured, you will sleep better at night, knowing you are protected from the perils in life that invariable happen from time to time.