How to save on home insurance

1. Comparison shop

Different companies offer different prices and coverage options so it makes sense to ask around to find the policy that best fits your needs and your budget. An independent insurance agent can get you a handful of quotes from companies that offer the kind of coverage you need. If you don’t like dealing with insurance agents (many people don’t) you can always ask friends and family about what policy they bought and how it worked out for them.

Before you make a purchase you will want to check the financial health of a company and learn more about its reputation. The best source of information on this topic is the AM Best ratings. The A.M Best Company analyzes rates and insurance companies based on their overall quality and strength. It gives insurers grades, much like school, A++, A+, A, A-, and so on. The higher the rating the safer the company is from collapse. Don’t buy insurance from any insurance company with an A.M. Best policy holder rating of less than “A” unless you have no other choice.

2. Increase your deductible 

The deductible is the amount of money you agree to spend on damages before insurance will start paying for them. Usually home insurance deductibles start at $250 then increase up to $2,000 or more. Higher deductibles always result in lower monthly payments (referred to as a premium) because the insurance company is not obligated to pay as much. At the same time lower deductibles always result in higher premiums because the insurance company is agreeing to pay a greater share of damages.

The savings can be substantial. Most insurance companies suggest buyers choose a deductible of at least $500 but if you raise the deductible you could save 25% on your premiums. As you continue to raise your deductible your premiums will fall, but not as sharply.

3. Insure your home, not your land

The land your house was built on is not at risk of fire, theft, tornado, or other dangers covered by a home insurance policy. Don’t include the value of your land when deciding how much home insurance to buy or you will end up paying higher premiums than you should.

4. Buy your other policies from the same insurer

Often you can save 5-15% on your monthly premiums if you buy all your insurance needs from the same company. Normally this is a cost effective strategy, but be sure to shop around and make sure that this option is cheaper than buying the policies separately from different vendors.

5. Make your home disaster resistant

Contact your insurance agent or insurance provider and ask if they provide discounts for homes that have storm shutters, reinforced roofs or stronger roofing materials. If you have an older home you might want to look into modernizing your electrical, heating and plumbing to cut down on the risk of water or fire damage. Also if you live in an earthquake prone part of the country consider retrofitting the home to make it more resistant to earth movement.

6. Get better home security

Deadbolt locks, burglar alarms, smoke detectors and other common inexpensive options can save you up to 5% on your monthly premiums and keep you and your family safer. If you want to take it to the next level consider installing a sprinkler system because it will virtually eliminate the possibility of your home being destroyed by fire. While these systems are not cheap they can reduce your premiums by 15-20% and they will better protect your loved ones. Before you start to spend on the system contact your insurance provider to see what kind of discounts they offer for different systems.

7. Think about insurance when buying a home

Many first time home buyers make the mistake of looking at the sticker price of a new home without considering all the ancillary costs. Besides taxes and repairs home owners insurance is one of the bigger expenses. Contact an insurance agent or provider before buying a home to see how much it will cost to insure the home and consider how much you can save on premiums by buying a newer home. If you live in tornado alley a brick home should be cheaper to repair, and if you live near a fire hydrant or you community has a professional rather than a volunteer fire department you may get a discount.

If you are buying a previously lived in home be sure to check the CLUE (Comprehensive Loss Underwriting Exchange) report on the house. This report will list the insurance claim history of the property and it can give you some insight into the problems or lack there of that the house has.

Also keep in mind that basic home owners insurance does not cover all perils. If you live near a river you will have to consider separate flood insurance. Also the Federal Emergency Management Agency has lots of useful information on flood insurance on its website. If you life near the pacific coast you may need to consider separate earthquake or mudslide insurance. If you life on the Atlantic coast you may need to get additional coverage to protect against hurricane caused damage. Make sure you know what damages your homeowners insurance excludes before buying additional coverage.

8. Stop Smoking

Smoking accidents create about 20,000 residential fires every year and some insurers will offer discounts if nobody in the home smokes. Please keep in mind that if you get this discount you must inform your insurer and give up your discount if anybody in the home takes up smoking. If you get the discount and your home burns down because one of its occupants left a lit cigarette on the floor don’t expect the insurance company to pay for any of the damages.

9. Are you over 55?

Seniors tend to take less safety risks and better care of their homes than younger people. Also by the time adults turn 55 they are less likely to have young children in the house. If you are at least 55 years old you may be able to get a senior discount on your homeowners insurance, but some companies don’t offer this until a buyer is 65.

10. Buy coverage through a large group

Large employers, professional or social organizations sometimes work out deals with an insurance company that brings the insurer a lot of business in exchange for reduced rates. Ask any large groups you belong to if this type of benefit is offered.

11. Maintain a good credit score 

One of the factors insurance companies use to determine an appropriate premium is your credit score. Studies show that less credit worthy individuals tend to cost more to insure than individuals with high credit scores. If you are paying your bills on time and using debt responsibly you should get a discount on your premiums without even needing to ask for it. In most states an insurer is legally required to notify you if they will charge higher premiums due to a poor credit score and this is a great opportunity to make sure they have they have accurate information on file.

12. Stay with one insurer

If you have continued to by insurance from one company over the years you may receive a special discount, but often you have to ask for it. The industry standard is to cut premiums by about 5% if a customer stays with them for 3-5 years and to cut the premium by about 10% if you stay for six years or more. Ask your insurance provider about these discounts before you decide which company to buy insurance with and periodically comparison shop to make sure you couldn’t get a better deal elsewhere even without a legacy discount.

13. Review your coverage once a year

You want to buy coverage for the value of your home and belongings, but their value changes over time. For example if you just sold a valuable piece of art you won’t need the same amount of coverage. Conversely if you just completed an addition to your building you will need more coverage to guard against damages. If you review your policy once a year (new years is a good time for this) you can stay ahead of the game.

13. Investigate private insurance if you are in a government plan

If you live in a risky par of the country like Los Angeles (earthquakes) or Miami (hurricanes) and your homeowners insurance comes through a government plan you want to comparison shop by contacting an independent insurance agent or getting quotes online. You may find that there are cheaper, better coverage policies on the free market.

14. Make EFT (electronic funds transfer) payments

Processing checks via mail takes time and adds cost to any companies overhead. It also takes up more of your time. Some companies now charge $5 for payments made via phone or mail so consider having your premiums automatically deducted from a checking account or paid with a credit card every month.

15. Consider cash value vs. replacement cost 

One common risk that gets overlooked when buying home insurance is that the coverage may match the purchase price of your home, but not its replacement cost. For example if your home is destroyed by a tornado you don’t just need to pay the costs of building a new home, you also need to pay for the removal of all the pieces of your destroyed home and sometimes if the damage is bad enough you will need to have the foundation dug up and removed so a new structurally sound foundation can be put in. Also, natural disasters like hurricanes usually destroy lots of homes which greatly increases the demand for lumber, insulation, and labor. When massive damage abounds all these things cost more than they did before a natural disaster.

The insurance industry has created a solution to their problem and it is called the home replacement guarantee. For an extra $5-$10 per year you can have this guarantee added to your coverage and your company will agree to pay for the full cost of replacing you home even it exceeds the coverage amount.