How to Save Money on Homeowners Insurance

Homeowners insurance, also known as hazard insurance, is a major expense for homeowners, usually between $100 to $200 per month for a basic policy on an average-sized home.  Additional “riders” (extra insurance premiums) may be needed to cover belongings (like expensive jewelry or valuable collectibles) or specific damages (like mold growth) that are not covered under the basic policy.  But there are ways to save on your homeowners insurance policy. Here are several suggestions about how to save money on homeowners insurance, taken from the Federal Citizen Information Center (FCIC), a division of the federal government’s General Services Administration (GSA), and the Insurance Information Institute (III).

Tips to Cut the Cost of Homeowners Insurance

Shop Around

Homeowners insurance rates and coverages vary widely depending on where you live and what company is writing the insurance policy. The best way to save money on homeowners insurance is to shop around and compare rates and coverages. Consult with family and friends. Check the Yellow Pages or the Internet. Contact your state insurance department or the National Association of Insurance Commissioners (NAIC), which has information about typical rates charged by companies and tracks the number of consumer complaints logged against insurance companies. Check consumer guides, talk to insurance agents and get rate quotes online.

Don’t just buy homeowners insurance based on price alone, though. When shopping for homeowners insurance, make sure you are comparing plans with equivalent coverage. The depth of coverage and the level of service can vary widely from carrier to carrier. You want to get the best combination of a competitive price and excellent service, because if you can’t get service when you need it most (when you have a claim that needs attention), what good is the insurance company regardless of the rate?

As you assess prospective insurers, check their financial stability with insurance rating services such as A.M. Best or Standard & Poor’s.

Ask your top three prospective insurers for price quotes and then decide on which to go with.

Raise Your Deductible

The deductible is the amount you pay to cover a loss before the insurance company steps in and covers the rest. Generally, the higher the deductible amount is, the less your monthly insurance premium will be. A deductible of $5,000 per claim can translate into more than one-third in savings on premiums, although if you have a claim, you might have to dig into savings to pay it. Most people decide to go with a deductible higher than the minimum. A deductible of $1,000 could save you nearly 25 percent on your monthly premiums over the lowest deductible. Extra coverage policies, such as hurricane or earthquake insurance, carry their own deductible amounts and the rates also vary depending on the deductible amount.

Don’t Insure the Land, Just the Home

Sometimes the land underneath and surrounding the home is worth more than the home itself, especially if the lot is large and the home is old. But even major disasters rarely threaten the land, so why insure it? Your appraisal should separate the cost of the land from the cost of the structure, which will help you determine what your coverage should be and help you avoid paying too much on homeowners insurance.

Buy All Your Insurance from the Same Provider

Some companies offer a discount if you buy your auto, health or life and homeowners insurance from them, but be sure that their price for multiple policies is less than a combination of competitors if you bought policies separately.

Stay with the Same Insurer

Some companies offer so-called “loyalty” discounts, so if you have insurance coverage through the same company for several years, inquire about a discount. Check each year to make sure any “savings” for longevity with the company are not less than if you switched companies.

Improve Your Home Security

Many companies offer discounts if your home is equipped with certain safety features, such as smoke detectors (something you should have anyway), burglar alarms or dead-bolt locks. Installing a sprinkler system can also lower your insurance premiums. Before you invest in any of these, ask what the insurer recommends and if installing them will earn you a discounted rate, then perform a cost-benefit analysis to see if you’ll actually save any money.

Make Your Home More Disaster-Resistant

Determine what steps you can take to make your home more resistant to natural disasters. Again, you’ll probably have to conduct a cost-benefit analysis to gauge whether an improvement like installing storm shutters, reinforcing the roof or retrofitting for added protection against earthquakes will eventually pay for itself in lower premiums or help you avoid a major claim.

Seek Out Other Discounts

Discounts vary widely by company, by the state you live in and often by what part of the state you live in. Certain classes of people often get lower rates, too. For example, retired people usually earn some kind of break on rates because they generally devote more time maintaining their homes than other people. Ask about these and other types of discounts that may not be publicized.

Maintain a Good Credit Rating

Whether it’s fair or not, insurance companies often consider your credit rating when quoting rates. So to get the best rate, maintain a good credit rating by paying your bills on time, don’t access credit you don’t need and keep your revolving credit balances as low as you can. In addition, check your credit report periodically to make sure it is accurate and promptly report any incorrect information in your credit report to assure that your credit report remains accurate.

Review Your Policy and the Value of Your Possessions Regularly

Have you upgraded your belongings (like electronics) or bought new furniture since you first took out your policy? If so, your personal property insurance may no longer be adequate to cover your possessions. Be sure to review your insurance coverage periodically by comparing the limits of your policy to the value of your belongings.

In a related matter, be sure that you know what you will be paid in case of a total loss. Will your five-year-old refrigerator that cost $2,000 new be fully covered (full replacement value) even though its comparable model now costs $2,500? Or will you get $2,000 for it — or a lesser, depreciated amount (it is five years old). Know these limits when you take out the policy to avoid unpleasantness after you file a claim.

Consider Private Insurance First

For some people who live in high-risk areas — places that are more vulnerable than average to storms, hurricanes, earthquakes, wildfires, etc. — the only option for homeowners insurance is often through a government plan. But in many areas, private insurance is still available, often at a lower cost than a government plan.

Check into Group Insurance Coverage

Business associations, college alumni associations and retirement associations (including AARP) sometimes offer group insurance rates for their members. Often these group rates are less expensive than if you went about acquiring homeowners insurance individually.

Stop Smoking

Smoking contributes to more than 23,000 residential fires in the U.S. each year, according to the FCIC. Some insurers will offer a discount for smoke-free households.

Consider the Cost of Homeowners Insurance When You Buy a Home

If you buy a home near a fire station, some insurers may offer you a reduced rate.  While rates might be higher in communities served by all-volunteer fire departments. If the electrical, heating and air conditioning and plumbing systems are less than 10 years old, you may also earn a lower rate. Brick homes are more wind-resistant than other types of construction. Wood-frame homes generally hold up better against earthquakes.

One important report to check is a home’s CLUE report, which stands for Comprehensive Loss Underwriting Exchange. These reports contain the insurance claim history of the property and can help you discover previous problems and predict future ones.

Whether you’re buying a new home, or just looking to cut back your household expenses, keep these tips in mind when you shop for homeowners insurance, and you’re sure to save some money on your policy.

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