Insuring Your Home: Lowering Your Premium... by Kathy Scott
When purchasing a home, most mortgage companies require the buyer to have homeowners insurance as a condition for receiving the loan. According to the Insurance Information Institute, the average cost per year for a standard homeowners policy in 2004 was $608. While standard homeowners policies will cover the structure of the home and its contents against fire, theft, and some natural disasters, (excluding floods, earthquakes, landslides, mudslides or sinkholes), the amount of coverage varies. Even if you're not in the market for a new home, it's a good idea to review your policy to make sure your coverage is in line with your home's current appraised value.
The declared value of your home should not take into account the price of the land that it sits on, since the land would generally not need to be rebuilt after a catastrophic event. Insurers approximate the land price to be about 25 percent of the full home price. For example, if your home is appraised for $200,000, the amount your home should be insured for is about $150,000 or 75 percent of the full appraised value.
If you live in an area that is subject to earthquakes, you should consider adding an endorsement on your policy for coverage in the event of a quake. For California residents, the California Earthquake Authority (earthquakeauthority.com) underwrites the coverage. If you live in a flood-prone area, additional insurance must be purchased for protection against loss associated with flooding as well. Standard homeowners policies do not cover these perils and will not pay out for damage associated with earthquakes or floods without the necessary coverage being added to the policy.
The Insurance Information Institute also suggests that homeowners who live in areas frequently hit by major storms should speak with their insurer about an "extended or guaranteed replacement cost" policy. This policy will provide a certain amount over the current policy payout if building costs rise unexpectedly due to high contractor and supply demands.
Your homeowners policy also covers your personal belongings. You should make a detailed inventory list of your property. When estimating the full replacement value of your personal belongings, 75 percent of the home structure's value or $50,000 per person living in the home is a general rule of thumb to use for coverage. Even with content coverage of $100,000 or more, there are payout limits on various goods like jewelry, art, computers, coins and firearms which usually cap out at $1000. To properly insure items over the $1000 limit, you should obtain a separate policy for each item that extends beyond the cap. The separate policy covers those items if they are lost or stolen and can cost as little as $30 per year for a piece of jewelry appraised at $3000.
While there are many factors that go into the cost of a policy premium, the deductible accounts for a significant portion. In fact, the higher the deductible, the lower the premium.
Lowering Your Premium without Minimizing Your Coverage
1) Get at least three bids - The price you pay for your homeowners insurance can vary by hundreds of dollars, depending on the insurance company.
2) Raise your deductible - Most insurance companies recommend a deductible of at least $500. Raising it to $1,000 can save as much as 25 percent on your annual premium.
3) Consider using the same insurer for your automobile - Many companies offer discounts if you have at least two policies with them.
4) Add a home security alarm system - Smoke detectors, burglar alarms and dead-bolt locks can save the insured as much as 5 percent annually.
5) Ask about additional discounts - If applicable, inquire about senior discounts. Some employers or professional associations also have negotiated discounts for their members.