Homeowners' insurance premiums can vary greatly
depending on your home, the location, the carrier and amount of coverage, and
you have the opportunity to lower your rates at any time. Here is a strategy, and several
things to keep in mind, that will help you
reduce the price:
Do Your Own Due Diligence (but also find a trusted professional).
When you speak with an insurance agent or
broker, remember that your agent gets paid commissions
as a percentage of the premium. Many times insurance agents work to drive
up the price or simply don’t tell you ways that you can save on your insurance
- so they can get paid more.
However, a good insurance agent realizes that
his or her business will do much better if it is aligned with the goals of the
insured (your goals), which is to provide affordable insurance that adequately
covers their client’s risk.
You will know in the first few minutes, whether your agent is working to lower premiums or sell you
coverage that you don’t need. By taking time to understand your insurance, and following some of the strategies you are learning here, you will know where
your agent stands. You may need to fine another agent. So, do your homework and listen to your trusted agent.
You may need to raise your deductible.
Your deductible is the amount that you will pay, out of your pocket in the event of a covered loss, before the insurance kicks in. The lower the deductible the more you will pay in premium and the higher the deductible the lower your rates will be. So if you have a $500 deductible you may want to raise that but make sure you understand the risks involved and you must be comfortable with the risk of raising your deductible.
In that regard, home insurance is different from auto insurance. With home insurence the coverage amounts are much larger compared to the deductible. The amount required to replace you home is not affected by the deductive as your home would cost hundreds of thousands of dollars to replace. That is drastically different from the financial impact of an auto accident and your auto insurance policy.
For example, raising your homeowners’ insurance deductible to $5,000 would not have a significant impact on replacing your home (or a significant part of your home) in the event of a loss. If your home costs $500,000 to replace, $5,000 is only 1% of the cost. However, $5,000 would be 25% of a $20,000 car or 50% of a $10,000 car. So raising the deductible on your home insurance would have less of an impact because we are dealing with higher coverage amounts. Many insured don't considered the difference.
This strategy is acceptable, unless you plan on filing a claim for every little repair that your home may need. If you raise your deductible to $5,000 you won’t file a claim on anything that can be fixed for less than $5000. This is probably a better strategy as you will pay for such a minimal claim in raised premium. If you file lots of claims, many will be denied and many will stay on your record and you will find that you will be dropped by your carrier when the policy comes around for renewal.
So, raising your deductible on your homeowners’
policy may not be as risky as you think. But again, you must be
comfortable with that risk and fully understand the implications of raising
your deductible.
Home Insurance coverage is not what you paid for your house
The land on which your house sits is not at
risk of theft, windstorm, fire and the other perils covered in your homeowners’
policy. If you are insuring a home for the amount that you paid to buy
the home, which includes the land and the structure, you are probably over
insured. Even with higher building costs these days, a house that sells
for $600,000 (land and structure) might be rebuilt for $375,000 if there was a
covered loss. This is again where insurance agents may remain silent and
write coverage amounts that put commissions in their pockets.
Keep in mind, that other types of coverage
limits are determined off of the coverage for the structure. This is known as "coverage A." Personal Property is generally 40% to 55% of Coverage A and Separate Structures are generally 5% to 10% of Coverage A. So if you are over insured for the amount
to replace your home you will be over insured and paying a higher cost in other
categories of coverage.
However, you don’t want to be under-insured
either. So every year you need to review your home insurance
coverage. As time goes buy, building costs will increase, and next thing
you know your coverage will not replace your home if you have a total loss, and
you must increase the coverage on your policy. But generally homeowners
become over insured by thinking they must cover their home for the entire
amount that was the purchase price when they bought the home. The carrier will
only pay out replacement costs if there is a loss, even if you are over
insured. So you can lower your premium by making sure you have an accurate
replacement cost. A good agent will help you with that determination.
Also, many carriers will charge more for
"extended replacement" value and charge you more for say 110%, or
120% of replacement value. For example if replacement is $200,000 and you have
120% extended replacement coverage then the insurer would pay up to $240,000 to
replace your home in the event of a covered loss. Some extended replacement
cost may be wise, like 110%, as an extra buffer in case building costs increase
over the policy period unexpectedly. But some policies go as high as 150%
extended replacement, which raises the cost to you. Best to review your policy
every year and maintain an accurate replacement cost, and pay the lower premium
accordingly and perhaps a small extended amount if that is more in line with
your tolerance for risk.
Combine your homeowners’ insurance with the other insurance.
Almost every carrier will provide discounts
when you buy multiple policies from the same company. You are buying
other insurance anyway, and so you might as well have all insurance with the
same carrier and experience a discount across the board on all policies, and
minimize the time and effort maintaining all of your insurance.
For example, most households will have Auto,
Life, and need some umbrella coverage in addition to home insurance to make
sure their personal liability is covered. Many homeowners own businesses
and need commercial insurance, which can include general liability, business
property, commercial auto, workers’ compensation, and errors and omissions
insurance to name a few. Moreover, most households have "toys" such
as motorcycles, trailers, campers, RV’s, ATV’s and some have rental or vacation
properties that need insurance. All such insurance, should be under one
carrier and you can save up to 25% to 35% on your homeowners insurance, once all policies are consolidated with one carrier. And again, that's insurance you need to purchase anyway.
If your carrier does not carry all such
insurance, you may want to find another carrier who has a broader range of products. Large reputable insurance carriers
such as Farmer Insurance Group will cover all such risks and provide a discount for multiple policies. So see if your
current carrier can cover all types of insurance that you need and provides
discounts for covering all insurance. If not, you may need to change carriers.
Make your home more disaster resistant
Ask your agent what you can do to make your
home more resistant to windstorms and other natural disasters. You can
lower your premiums by adding storm windows, storm shutters, upgrading your
roof or installing stronger roofing materials. Homes that may be older may need
to be retrofitted for earthquakes. And think about upgrading your heating,
plumbing and electrical systems to reduce the risk of fire and water
damage.
You may have already done such improvements in
the last 10 to 20 years, but they are not reflected in your policy. Make
sure you bring any such upgrades or improvements to the attention of your agent
or broker. And if you make any improvements keep an invoice or any documented
proof of the improvement as your carrier will want such evidence in order to provide
a discount. Often agents don't ask the right questions when the policy was put
in place, so make sure you tell your agent or company representative so you can realize the savings your entitled to receive.
Home Security
There are discounts generally of at least 5
percent for smoke detectors, burglar alarms and dead-bolt locks. Install
a sprinkler system (or one may be already installed) and most carriers will cut
your premium by 15% to 20%. Such fire systems and burglar/anti-theft systems
should be monitored at a central station in case of emergency. These monitored
system bring higher discounts. Although this comes at a cost, these are
things you ought to be doing anyway to keep you and your family safe. And
again, you may already be doing these things but they are not reflected in your
policy.
Seek out other discounts.
Make sure you ask and inquire about all
discounts. Most companies can provide you with a
list of all discounts. Carriers have different discounts and they are always
adding discounts as incentives for new business. For example, most carriers
will provide a discount for certain occupations and they will consider many
different occupations, depending on the carrier, as a lower risk. Even if
you are retired from one of those occupations you generally will still get the
discount. And most carriers will provide a no-smoker discount. Make
sure you review all potential discounts. You will find you are probably missing
out on a few.
Maintain a good credit record
Keeping up a respectable credit history can
help lower your insurance cost. Carriers use your credit information to
rate homeowner’s insurance policies. Depending on where you live, your insurer
must tell you of any adverse action, such as a higher rate, which was a result
of credit information. This allows you to take any action necessary to
improve that situation.
The Credit bureaus that report credit
information must provide you with a report once a year upon request. Make sure
you check your reports. Identity theft is a problem and often there is erroneous
information on your credit reports. To protect your credit standing, don't get
more credit than you need and keep your credit balances as low as possible.
Stay with the same insurer
If you stay with on insurance carrier for
several years, you may receive a discount for being a long-term
policyholder or sometimes they call it a “loyalty” discount. Some 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. Some insurers will also provide other perks for renewing, and some
will automatically lower your deductible (without increasing rates) for being
with the company multiple years. But don't stay with one carrier for that single discount. if you are missing out on other discounts, or your carrier can't provide all the insurance you need, the loyalty discount may be costing you more in the long run.
Review policy limits and the value of your home and personal property once a year
Your policy should cover any changes to
property including purchases or additions to your home. But don't pay premiums
for coverage you don't need. If you have art or a collection that is no longer
worth what you paid for it, you should lower or cancel your floater (extra
insurance for scheduled items whose full value is not covered by standard homeowners’
policies such as expensive jewelry, high-end computers and valuable art work)
The market on many items will ebb and flow. Maybe that baseball card collection
isn't worth much as demand has dwindled. Take it off your list of scheduled
property on your policy, but make sure you get items appraised to be sure. You
will save some on your premium.
Try private insurance and eliminate any government plan
You may be using a government plan if the area in which you live is vulnerable to certain risks like coastal storms, crime, or fires. Check to
see if any such risks are being covered by private carriers. In California some
insurers are carrying earthquake coverage again, but the California Earthquake
Authority (CEA) still has most of that business. 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.
Consider the cost of insurance when you’re buying a home
You may pay less for insurance if you buy a
house close to a fire hydrant or in a community that has a professional rather
than a volunteer fire department. It may also be cheaper if your home’s electrical,
heating and plumbing systems are less than 10 years old. Look at where the home
is situated. In California Santa Ana winds come out of the northeast and push
fires towards the southeast. Look to see if there is some natural cover
or whether the location would be in the path of a fire coming from an open area,
with excessive brush and vegetation, that is close to the home. If you live in
an earthquake-prone area, look for a wooden frame house because it is more
likely to withstand this type of disaster, while masonry can suffer more damage.
Choosing wisely could cut your premiums by 5 to 15 percent.
Check the CLUE (Comprehensive Loss Underwriting
Exchange) report of the home you are thinking of buying. These reports
contain the insurance claim history of the property and can help you determine
some of the problems the house may have. Remember that flood insurance and
earthquake damage are not covered by a standard homeowners’ policy. If you buy
a house in a flood-prone area, you'll have to pay for a flood insurance policy.
The Federal Emergency Management Agency
provides useful information on flood insurance on its Web site at www.fema.gov/nfip/.
A separate earthquake policy is available from most insurance companies. The
cost of coverage will depend on the likelihood of earthquakes in your area. In
California the California Earthquake Authority (www.earthquakeauthority.com)
provides this coverage.
If you have questions about insurance, be sure
to ask your agent or company representative when you're shopping around for a
policy. For example, if you run a business out of your home, be sure to discuss
coverage for that business. Most homeowners policies cover business equipment
in the home, but only up to $2,500 and they offer no business liability
insurance. Although you want to lower your homeowners insurance cost, you also
want to make certain you have adequate coverage. So, don't incur a risk of a
large loss for saving only a few dollars.
Author:
Kevin Callon Boyle, Esq. - California Licensed
Insurance Producer - Calabasas, CA (818) 699-1789
Author: Kevin Callon Boyle, Esq.
Kevin Boyle
is a licensed insurance agent in Calabasas, CA. He has an MBA and practiced law
for many years prior to starting his agency.
He can be reached at (818) 699-1789 or by email at kboyle@farmersagent.com. You can reach him any time and he can help you get your life
insurance policy in place.
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