Home insurance is an extra expense that you can’t afford to eliminate from your household budget. So it makes sense to look for ways to reduce your homeowners insurance premium.
The good news is there are tons of ways of lightening this burden without hurting your possible pay-out after a claim. Some are pretty obvious, while others are simply creative but lesser-known by most homeowners.
Table of Contents
Know The Type of Coverage You Need
The first step to not spending more than you should on home insurance is understanding the different types of homeowners insurance covers.
There are eight home insurance policy types for various properties and coverage requirements. HO3 and HO5 are the most popular forms of single-family home insurance and probably what you’ll go with.
Both policies provide home, property and liability coverage. However, an HO5 is considered a premium option because it provides broader coverage, particularly to your personal property. But that also means that your premiums will be slightly higher.
If you want to save on home insurance and aren’t concerned about open perils coverage for your personal property, an HO3 policy will be a good bet.
While you’re at it, you may talk to your company or agent about the extent of HO3 coverage. Home insurance typically covers your residence’s interior and exterior, personal property, additional living expenses and other structures, such as a detached shed.
Additional living expenses (ALE) often amount to 10% to 30% of your dwelling coverage limit. But this may be lower if you can access alternative accommodation, for instance, in your second home or at a friend’s or relative’s place.
Know How Much Insurance is Sufficient
You don’t want to get caught without enough coverage when a disaster strikes. But if being underinsured is bad, so is being overinsured.
Over-insuring a home happens when the policyholder pays for more than they are likely to recoup when they make a claim.
For instance, let’s assume a covered peril has destroyed a home you had insured for $850,000. If the insurance claims assessor determines that you qualify for a $600,000 payment, that’s what you get from the insurance company. Technically, this means you’ve been forking out more money than you should on your premiums.
While the consequences of underinsurance are dire, paying higher premiums based on an overinflated home value is a waste of money. The key is to insure your home at the right value.
The first step in determining the right coverage amount is insuring your home for the replacement cost. This approach focuses on how much it would take to rebuild your home based on labor and building material costs. The premiums will be around 15% higher than if you were to insure your home against its actual cash value. But the extra payment will take care of inflation.
Raise Your Deductible
When a disaster befalls your home, the loss is shared between you (the policyholder) and the insurance company. The amount you’re responsible for paying is the deductible because it’s “deducted” from the claim payment. For instance, if you have a $500 deductible policy and suffer a $20,000 property loss, your insurer will pay $19,500.
Some home insurance companies set their deductibles as a percentage of your home’s insured value. For instance, if your policy has a 1% baseline and your home is insured at $250,000, you’ll pay $2,500 out of pocket in case of a claim.
When buying homeowners insurance, you are allowed to choose your deductible, the range varies between insurance companies, but it’s usually between $500 and $2000.
It’s important to understand that deductibles and premiums are indirectly correlated. If you choose a deductible of, let’s say, $500, you should expect to pay higher annual premiums. Conversely, if you hike your deductible to $1000 or more, you’re taking a higher risk, so the insurance company rewards you with lower premiums.
Of course, it comes down to math. Do your calculations and determine how much you’d save annually if you raise your deductibles to the next level or two. A good rule of thumb is choosing an amount you can comfortably pay out of pocket if you make a claim.
Upgrade Your Roof
Your roof’s type, age, condition and even shape are major considerations when a home insurance provider is determining your premiums. An old or damaged roof is a high-risk feature for your home insurance provider and must be factored in accordingly when calculating your premiums.
On the other hand, a well-maintained roof means that your home’s systems, foundation and personal property are better protected from the elements. Even proper steel guttering, such as lindab steel guttering, that are not only environmentally friendly but also durable, affordable and reliable. Because you’re lowering the probability of filing for a claim, you may see your home insurance premiums reduce by five to twenty percent, depending on your provider. It’s important to consult your provider to understand what roofing materials qualify for discounts.
Turn Your House Into a Smart Home
Smart home devices add convenience to your daily operations, saving you time and making your life at home more enjoyable.
Beyond boosting your home’s comfort, smart-home technology also lowers various risks, including theft and fire and water damage. Besides offering you peace of mind, these reduced risks also qualify you for substantial discounts on your home insurance policies.
Most home insurance companies are impressed when you take a proactive approach to reduce risks and lower damages. In particular, most home insurance companies tend to award discounts to homeowners with systems that help curb theft and prevent water and fire damage. You’ll also qualify for a relatively higher discount if you have a smart monitoring system capable of alerting you and the police or firefighters to an issue in your home.
How much you save for installing smart home devices will vary from state to state and between companies. But this often falls in the range of 5% to 13%. Interestingly, some insurance providers partner with the sellers to provide smart-home kits at significantly reduced costs, meaning more money in your pocket.