The price of homeowners insurance can vary significantly between providers. Here’s a comprehensive guide to help you make informed decisions when purchasing homeowners insurance and potentially reduce your premiums:
How to Save on Homeowners Insurance
- Shop Around:
- Research: Dedicate time to compare quotes from various insurance companies. Ask friends for recommendations, check online directories, and consult your state’s insurance department for consumer complaint information and typical rates charged by major insurers.
- Resources: Utilize resources like the National Association of Insurance Commissioners (NAIC) website (www.naic.org) to help you choose an insurer and view complaint data.
- Beyond Price: While price is important, don’t make it your sole consideration. The insurer should offer a fair price and provide quality service, especially when filing a claim. Assess service quality by reviewing complaint data and by speaking with different insurers about their customer service approach and cost-saving strategies.
- Financial Stability: Before finalizing your choice, check the financial stability of companies with rating agencies like A.M. Best (www.ambest.com) and Standard & Poor’s (www.standardandpoors.com/ratings), and consult consumer magazines. Once you’ve narrowed down to three, get firm price quotes.
- Raise Your Deductible:
- Definition: The deductible is the out-of-pocket amount you pay towards a loss before your insurance coverage kicks in.
- Savings: A higher deductible directly translates to lower premiums. Most insurers recommend at least a $500 deductible. Increasing it to $1,000 could save you as much as 25 percent on your premium.
- Disaster-Prone Areas: Be aware that policies in disaster-prone regions may have separate deductibles for specific types of damage (e.g., windstorm deductible near the coast, hail deductible in vulnerable states, earthquake deductible in earthquake-prone areas).
- Don’t Confuse House Purchase Price with Rebuilding Costs:
- Exclude Land Value: Your homeowners insurance policy covers the structure of your house, not the land it sits on. Do not include the value of the land when determining how much homeowners insurance to buy, as this will lead to higher, unnecessary premiums.
- Bundle Home and Auto Policies:
- Multi-Policy Discounts: Many insurers offer discounts, typically 5 to 15 percent, if you purchase two or more policies (e.g., homeowners, auto, liability) from them.
- Compare Combined Prices: Always ensure that the combined price from a single insurer is genuinely lower than buying individual coverages from different companies.
- Make Your Home More Disaster Resistant:
- Consult Your Insurer: Ask your insurance agent or company representative about specific steps you can take to make your home more resilient to natural disasters.
- Structural Improvements: You may save on premiums by adding storm shutters, reinforcing your roof, or using stronger roofing materials. Older homes can be retrofitted for better earthquake resistance.
- System Modernization: Modernizing heating, plumbing, and electrical systems can reduce the risk of fire and water damage, potentially leading to lower premiums.
- Improve Your Home Security:
- Basic Discounts: Standard discounts of at least 5 percent are often available for smoke detectors, burglar alarms, or dead-bolt locks.
- Advanced Systems: Installing sophisticated sprinkler systems and fire/burglar alarms directly linked to police, fire, or monitoring stations could yield premium cuts of 15 to 20 percent.
- Cost-Benefit Analysis: These sophisticated systems can be expensive. Before purchasing, verify with your insurer which systems qualify for discounts, their cost, and your potential premium savings.
- Seek Out Other Discounts:
- Senior Discounts: Some companies offer up to a 10 percent discount for individuals aged 55 or older and retired, as they are often home more and tend to maintain their properties better.
- Group Programs: Check if your employer or professional associations administer group insurance programs, which may offer better rates.
- Varying Discounts: Be aware that discounts and their amounts can vary by company and state.
- Maintain a Good Credit Record:
- Credit-Based Pricing: Insurers increasingly use credit information to price homeowners insurance policies. A solid credit history can lead to lower costs.
- Protect Your Credit: Pay bills on time, avoid unnecessary credit, and keep balances low. Regularly check your credit record for accuracy and promptly correct any errors.
- Adverse Action Notification: In most states, your insurer must notify you if your credit information results in an adverse action, such as a higher rate, allowing you to verify the data’s accuracy.
- Stay with the Same Insurer:
- Long-Term Policyholder Discounts: Some insurers reward loyalty with premium reductions, typically 5 percent for staying three to five years and 10 percent for six years or more.
- Periodic Comparison: While loyalty discounts are beneficial, always periodically compare your policy’s price with other offerings in the market to ensure you’re still getting the best deal.
- Review Policy Limits and Possessions Annually:
- Adequate Coverage: Ensure your policy covers any major purchases or home additions.
- Avoid Over-Insuring: Conversely, avoid paying for coverage you no longer need. For instance, if a floater for a valuable item (like a fur coat or jewelry) is no longer justified by its current value, reduce or cancel the floater to save money.
- Look for Private Insurance if You’re in a Government Plan:
- High-Risk Areas: If you live in a high-risk area (e.g., flood-prone, coastal storm zone, high-crime) and are currently insured through a government plan, contact an insurance agent, company representative, or your state’s department of insurance.
- Private Market Potential: You may discover steps you can take to qualify for lower-priced insurance in the private market.
- Consider Homeowners Insurance Costs When Buying a Home:
- Location Factors: Insurance costs can be lower for homes close to a fire hydrant or in communities with professional fire departments.
- Home Systems: Newer electrical, heating, and plumbing systems (under 10 years old) can reduce premiums.
- Construction Type: A brick home in the East may be more wind-resistant, while a wooden frame house in an earthquake-prone area might be more resilient to seismic activity. These choices could cut premiums by 5 to 15 percent.
- CLUE Report: Obtain the CLUE (Comprehensive Loss Underwriting Exchange) report for any home you’re considering buying. This report details the property’s insurance claim history and can alert you to potential issues.
- Excluded Coverages: Remember that standard homeowners policies do not cover flood or earthquake damage.
- Flood Insurance: If buying in a flood-prone area, you’ll need a separate flood insurance policy (averaging $400/year). The Federal Emergency Management Agency (FEMA) offers useful information at www.fema.gov/nfip/.
- Earthquake Insurance: A separate earthquake policy is available from most insurers. Costs depend on regional earthquake likelihood. In California, the California Earthquake Authority (www.earthquakeauthority.com) provides this coverage.
- Special Possessions/Businesses: Discuss coverage for specific possessions or home-based businesses with your agent. Most policies have limited coverage for home business equipment (e.g., up to $2,500) and no business liability insurance. Ensure you have all necessary coverage while striving to lower costs.