Ten Tips to Avoid Overpaying for Your Home Insurance

Home Insurance Basics

If you have a home, it is likely that you already have homeowners insurance. However, many people either don’t carry enough coverage or are paying too much for their current coverage. Just because you are paying more doesn’t mean that you are getting superior benefits.

Most financial advisors suggest double-checking your home insurance once a year. You may be paying for insurance products that you don’t need. 

Here is some basic information about home insurance policies and tips on how to lower your annual premium. 

Homeowner’s insurance usually covers:

• The main residence
• Garages
• Other dwellings on your property 
• Driveways
• Liability for damages or injuries on someone else’s property 
• Personal property 
• Walls, fences, and gates
• In-ground swimming pools 

Homeowner’s insurance terms to know:

Peril: The damage or loss caused by an event 

Replacement Cost: The amount of money it would take to replace your home or personal belongings. This amount should only include the property value, not the land value.  

Actual Cost Value: The value of the property after depreciation has been deducted. Usually, the actual cost value is lower than the replacement cost. 

There are three basic home insurance policies, named HO-1, HO-2, and HO-3. Home insurance policies cover your home in the case of unexpected damage. Here’s a quick description of each type of coverage.

HO-1: Basic Form

• What is it: HO-1 insurance is the most basic form of homeowners insurance. Property value will typically be covered by its actual cost value. 
• What does it cover: Fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism, theft, and volcanic eruptions. 
• Who is it for: Because this policy has limited coverage, many insurers do not carry this insurance policy. HO-1 insurance isn’t recommended for most homeowners. 

HO-2: Broad Form 

• What is it: HO-2 insurance provides a broader variety of perils compared to the HO-1 policy. In an HO-2 policy, property value is typically covered by its replacement value and personal property is covered by its actual cost value. 
• What does it cover: HO-2 policies cover everything in an HO-1 policy, plus a couple of additional perils, such as weight of ice or snow on a structure, overflow or discharge of water, freezing, cracking or bulging caused by an event, power surge, and falling objects.
• Who is it for: Since HO-2 offers limited coverage, it is less common than an HO-3 policy. 

HO-3: Special Form

• What is it: Under an HO-3 policy, your home will be covered at its replacement value, and personal property is covered by its actual cost value. 
• What does it cover: Compared to the HO-1 and HO-2 policies, HO-3 provides the most coverage. The HO-3 policy covers any peril that causes damage to your home except for earthquake, flood, landslide, nuclear accident, sinkhole, neglect, and war. 
• Who is it for: HO-3 is a good policy for most homeowners, hence why it’s one of the most commonly held homeowners insurance policies. 

10 Ways to Reduce the Cost of Your Home Insurance 

1. Shop around for Home Insurance Policies: Loyalty to one company does not always pay off. Contact a broker or compare insurance providers online to see whether or not you should continue with your existing homeowner’s insurance. When comparing insurance companies, don’t forget to look into the company’s history and track record. 
2. Bundle Your Insurance Policies: When shopping for home insurance policies, evaluate the difference in price between individual and bundled home insurance. The discount depends on the policies you want, but oftentimes it is cheaper to have all your insurance policies under one company.  
3. Increase Your Deductible: An easy way to keep your annual premium low is by increasing the deductible. A deductible is an amount you pay upfront before the insurance company picks up the tab. If you decide to have a high deductible plan, create an emergency fund to help cover the deductible if a natural disaster occurs. Compare the insurance premium quotes based on different deductible amounts. 
4. Purchase Homes in Low-Risk Areas: Look into moving into areas with high safety ratings or states that are less likely to have natural disasters occur. 
5. Improve Your Credit: Home insurance companies often use your credit history to determine risk. Insurance brokers give more attractive rates to people with credit scores above 700. If your credit score has gone up since applying for your homeowner’s insurance policy, you could be overpaying for your policy. You can improve your score by making payments on time, paying down debt, and limiting your credit checks. 
6. Add Home Improvements that Guard against Natural Disasters: Even though homes are well built, there are improvements homeowners can do to make their houses less vulnerable to natural disasters. These projects include shatterproof windows, more durable roofing materials, bolting the house to the foundation, and installing wind-resistant garage doors. 
7. Add Home Safety Features: Purchasing safety features like a home burglar system, carbon monoxide detectors, and installing deadbolt locks are all easy and inexpensive things you can do to reduce your premiums. 
8. Skip Small Claims: You may be tempted to file a claim with your insurer when something minor happens, but in the long run, you will be better off paying for those expenses out of pocket. Insurers usually give discounts to those who are claim-free for some time.   
9. Ask About Discounts: Make a point to ask about discounts when reviewing home insurance plans. Some insurers offer discounts if you are retired, live in a gated community, have a home alarm system, are a nonsmoker, and recently bought your home.  
10. Revise Policy Each Year Based on Possessions: Updating your policy to reflect the worth of your possessions is crucial to conserving money on your policy. Many assets decrease in value as time goes by, meaning you may not need as much coverage to replace these items. 

The Bottom Line

Lowering your homeowner’s insurance premiums doesn’t mean that you have to move. Raising your deductibles, comparing rates, working on your credit score, and skipping small claims can help you pay less and feel well protected. 

This article was originally published here and is republished on Wealthtender with permission.