While most people are very aware that their home is probably the single greatest investment they will ever make, they are less sure of what to look for with home owner insurance or how to avoid paying too much in premiums. Fortunately, there are easily understandable steps that can help anyone save money when insuring that most precious possession.
Know the value and how much will be insured
When buying home owner insurance (HOI), apart from having a good appraisal, it is important to understand the different types of values.
Market value is the value of a home that one can expect to receive if the home is sold at a fair price. This includes the land the home is sold with.
Replacement cost is how much one will have to pay to rebuild a home if it is destroyed.
Since the land itself is very unlikely to be destroyed, the replacement cost and not the market value is what needs to be insured.
That being said, many policies reimburse the “actual cash value” of a home. While a replacement cost policy, which will cost more, will cover what it will cost to replace the lost property with something of the same quality, an actual cash-value policy will reimburse at the depreciated price. Therefore, the insurance company may not pay at the appraised value of the lost property if the property has declined in value from depreciation or substandard maintenance.
While home owner insurance will generally cover a wide array of damage to include fire and lightning, ice and snow, falling objects, smoke damage and vandalism etc., events like earthquakes and floods are often excluded. Those desiring this type of coverage will need to take out supplemental insurance. Always be very careful to understand exactly what will be covered and to what extent.
How to save money on home owner insurance
There are a lot of ways to keep the costs of home owner insurance down that range from steps that can be taken before the home is even purchased to making the right improvements.
- Buy with insurance in mind: The cost of insurance should be considered when looking at the prices of homes. Factors ranging from the construction of a home, the likelihood of natural disasters in the area and its distance from the nearest fire station can all have an effect.
- Home improvements: The right home improvements will save money on home owner insurance while making a home a safer and more pleasant place to live. Check with the insurance company since many offer discounts for improvement ranging from certain roofing materials to deadbolts. In particular, disaster proofing a home with things like storm shutters can be well worth the cost.
- Claim-free history: While it is obviously necessary to make claims at times, having a claim-free history is something to stress when shooting for lower insurance premiums.
- Keep a clean credit history: Having a good credit history is a plus when shopping for insurance.
- Higher deductibles: One way to keep claims off one’s record and save money at the same time is through higher deductibles. As a general rule, having a bigger deductible will be worth it over time. Keep deductibles at the highest level that is practical.
- Stop smoking: Smoking is a huge fire hazard and nonsmokers can get discounted rates.
- Buy multiple products from the same insurer: Discounts of 5-15 percent can often be had when more than one policy is taken out with the same insurer. This can simplify things too and should be tried when applicable.
- Home security: Having a home security system will keep people safe while saving on premiums.
- Leave out the value of the land: For the reasons covered in market value and replacement costs, there is usually no need to insure the land.
- Shop around and be wary of commissions: Look around carefully for the best possible price and be watch out for commissions that will raise premiums.
- Review the policy regularly: As life changes, so does one’s insurance requirements. Review the policy at least once a year to make sure what needs to be insured is and what does not require coverage is dropped. In addition, look at what other companies are offering. However, keep in mind that staying with the same company for a long time can also bring discounts.
- Install a sprinkler system: Protect loved ones, property and finances with a sprinkler system that can reduce premiums.
- Look for private insurance: Remember that private insurance will generally cost less than government insurance. In addition, certain employers and professional associations also offer discounts.
- Check with the insurance company for discounts: Good things also come to those who ask. There is no telling what discounts a company might offer.
- Make it tax deductible: If the policy if for home acquisition debt, it may be tax deductable. Use any available tax loopholes to reduce the final cost of insurance.
In the end, it is also important to keep in mind that the cheapest coverage is not always the best. Be sure of the stability of a company and its reputation in paying claims or there may not be any home owner insurance when it is really needed.