How to Save Money on Homeowners Insurance
Homeowners insurance may seem complicated, especially for a first-time homebuyer. You've committed a sizeable portion of your income to your monthly mortgage, and now you have to set aside money for insurance, too. In addition to monthly premiums, many homeowners find the application process difficult. They must take stock of their belongings and answer an elaborate list of questions about the house itself. When was it built? How old is the plumbing? When was the roof last replaced? And so on.
In this article, we're breaking down the process for you and providing tips on how you can save more money.
Home Insurance – An Overview
Home insurance provides coverage for private residences. There are six classifications:
- Dwelling Insurance covers the structure itself.
- Personal Property insures the contents of your home.
- Loss of Use covers additional living expenses if your home is damaged and becomes uninhabitable.
- Other Structures covers structures that are on your property, but are not attached to the main dwelling, such as a garage or tool shed.
- Personal Liability protects you against lawsuits for bodily injury or property damage. For instance, if your dog bites your neighbor, or if the mailman trips and falls on your broken front steps.
- Medical Payments helps cover medical expenses for an injury that happened on your property.
A home insurance policy typically covers multiple (but not all) hazards including theft, fire, lightning, windstorm, hail, tornadoes and hurricanes.
How Much Home Insurance Should I Buy?
Your insurance company can help you determine the appropriate coverage amount for your home. Answering that long list of questions will help your agent come up with the "replacement cost" of your home and your personal belongings. However, you also need to be cautious of becoming "over insured." It's best to compare coverage from multiple companies before settling on a policy. Additionally, you can find resources and advice online at the Insurance Information Institute, the National Association of Professional Financial Advisors and Insure.com.
It's important to note that the replacement cost of your home is not necessarily equal to its current market value. While real estate values have declined in recent years, be cautious about reducing your coverage as well. Don't base your policy on market value alone; purchase coverage at least equal to the estimated replacement cost of your house. You want a policy that will completely rebuild your house and replace all of your belongings if disaster ever strikes.
In addition to assessing the value of the home itself, it's important to take inventory of your household belongings. Take extra care to document expensive and valuable items, perhaps attaching photographs to a written log. In case your home and belongings are damaged, your inventory will prove invaluable when making an insurance claim.
Finally, be sure to review your policy every year to ensure you're adequately covered.
What Doesn't Home Insurance Cover?
Home insurance policies are lengthy contracts that explicitly state what is and isn't covered, so be sure to read the fine print. For example, policies generally do not cover floods, earthquakes or termites. You must buy special coverage to insure against such threats.
Additionally, your policy likely won't provide full coverage for expensive personal items like fine silver, wedding rings or your new computer. To protect such valuables, ask your agent about purchasing an insurance rider.
How Do I Save Money on Homeowners Insurance?
The cost of your home insurance policy is based on the replacement cost of your home. The greater the cost, the higher your premium. Here are a few tips for keeping your insurance costs in check:
- Before deciding on a policy, shop around and compare quotes to ensure you're buying the best coverage at the lowest price.
- Consider a deductible of $500 or more. The higher your deductible, the lower your premium. Just be sure to set aside money to cover your deductible in case you need to file a claim.
- Companies that sell home insurance often provide auto coverage and personal umbrella policies, too. If you bundle your policies with one company, you may receive a discount of 10-to-15 percent.
- Home security devices like smoke detectors, deadbolts and home alarm systems may earn you a discount on your home insurance.
- Other discounts may be available, too. Discounts are often available for seniors, members of the military, for homeowners with a claim-free history, for homes with new plumbing or electrical systems, and for homes located near a fire hydrant