• 2 marca 2014

5 Ways to Save Money on Home Insurance

Money Girl tells you how to get the best rate on home insurance and 5 tips to save money.

5 Best Ways to Save Money on Home Insurance Getting a home mortgage means you’re responsible for repaying a big debt on time. But there’s another expense that you can’t forget about: home insurance.

Most lenders will require you to have a homeowner’s policy. However, just because you have to buy one doesn’t mean you should overpay for it.

In this episode I’ll give you 5 easy ways to save money on home insurance.

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What Is Covered by Home Insurance?

Home insurance protects you and your lender from damage caused by unforeseen events, like a devastating fire erupting from the basement, a lawsuit from an unfortunate visitor who has a slip and fall, or a thief who takes all your valuables while you’re on vacation sipping fruity drinks on the beach.

But a standard homeowner’s insurance policy doesn’t cover every possible natural disaster. For instance, it never includes protection against floods and earthquakes; you have to buy separate policies for those.

Home insurance includes the following 4 basic types of coverage:

1. Your home’s structure, such as the roof or walls

2. Your personal belongings, like furniture and clothing

3. Liability for issues like getting involved in a lawsuit

4. Additional living expenses if you can’t live in your home during renovations
What Factors Affect Home Insurance Rates?

The price you have to pay for this protection depends on many factors concerning your home and you.

For instance, the home’s age, location, and construction type play a huge role in your rate. But there are personal factors too, like whether you smoke, have a history of making home insurance claims, and have good credit.

After you pay off a mortgage and own your home outright, you aren’t legally required to have home insurance. However, it’s still a good idea to have enough coverage to protect your finances.

Savings Tip #1: Raise Your Deductible

Your deductible is the amount you have to pay for a covered claim before your insurance company gives you benefits. It typically applies to property claims, but not for liability. Also, depending on where you live, you may have an additional deductible for a specific natural disaster, such as a hurricane or hail storm.

For instance, let’s say you have home insurance with a $500 deductible and make a claim for a kitchen fire that will cost $20,000 to repair. You’ll have to pay $500 and the insurer would pick up the rest of the cost, by sending you a check for $19,500.

An insurance deductible and your rate works like a seesaw. When your deductible goes down, your premium or rate goes up. And the same is true in reverse, when you increase your deductible, your premium goes down.

So, use this strategy to save money, but don’t raise your deductible so high that you’d get yourself into financial trouble if you actually had to make a claim.

See also: What Is a Deductible?

In addition to improving your overall personal finances, establishing a good credit history will cut your insurance costs.

Savings Tip #2: Maintain Good Credit

Many consumers don’t realize that credit is a factor in how insurers evaluate you. The vast majority of carriers, in most states, use a credit-based insurance score to set your rates for both home and auto insurance.

Insurers have found that policyholders with poor credit tend to make more claims. So they increase your rate to adjust for that potential future risk. That means in addition to improving your overall personal finances, establishing a good credit history will cut your insurance costs.

Some simple strategies for improving your credit include paying all your bills and credit accounts on time, never maxing out credit cards, and checking your credit report on a regular basis to correct errors that may be hurting you.

For more information about how to increase your credit score and check your credit, download the Credit Score Survival Kit, a free video tutorial.

See also: What You Should Know About Credit-Based Insurance Scores

Savings Tip #3: Bundle Your Insurance

Most companies that sell home insurance also sell other kinds of policies, such as auto or life insurance. If you purchase more than one type of insurance from a carrier, it may qualify you for a discount that could be as much as 15%.

However, you still need to compare prices and make sure that a bundled price is really lower than buying separate policies from different insurers.

Savings Tip #4: Ask for Discounts

And speaking of getting a price break, if you’re not getting all the home insurance discounts you’re eligible for, you’re paying too much. Here are some examples of discounts that can cut your rates:

  • Living near a local fire department
  • Having safety devices, such as a security system and deadbolt locks
  • Having a history of being claims-free
  • Having an impact-resistant roof
  • Making home renovations, such as installing new wiring
  • Installing sensors that detect gas or water leaks
  • Not smoking

Note that the insurance discounts you’re eligible for vary by company and the state where you live.

Savings Tip #5: Shop Around

Insurance rates vary considerably from carrier to carrier, even for the same property. And as I mentioned, so do the discounts that different companies offer. So your best defense is to shop around on a regular basis.

If you already have a home insurance policy, let your agent know that you’re looking for the best price to see if they can cut your rate. Sometimes, sticking with your current insurer qualifies you for a loyalty discount.

However, until you shop around you simply won’t know if a better deal is out there. It’s easy to get free quotes with no obligation at sites like insuranceQuotes.com and netquote.com. They match you with the top nationwide carriers who write policies in your ZIP code.

No matter what, take a few minutes each year to compare the price you’re paying for home insurance to brand new quotes.
Get More Money Girl!

There’s a huge archive of past articles and podcasts if you type in what you want to learn about in the search bar at the top of the page. Here are all the many places you can connect with me, learn more about personal finance, and ask your money question:

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By Laura Adams, MBA,
Money Girl
http://www.quickanddirtytips.com

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