Striking a balance: Are you overpaying for insurance?
Saving money on homeowners insurance can often take a back seat.
Many homebuyers fail to comparison shop for the best policies, potentially missing out on a better deal elsewhere.
That means some may sign off on a policy that leaves them paying for more coverage than necessary to rebuild their home, or with too little coverage for antique furniture and other valuables.
“A lot of people go to one agent and they say ‘I’ve shopped,’ ” said Bob Hunter, director of insurance at the Consumer Federation of America. But there’s no guarantee the agent will connect a homeowner with the most affordable insurance carrier, Hunter added.
Striking a balance between buying enough insurance to protect perhaps your biggest asset and keeping costs in check is feasible. Here are 4 steps you can take toward that goal.
Break it down: The first step to identifying possible savings is to understand how the typical homeowners insurance policy is set up.
Take a single-family house without any other structures on the property. Generally, a policy for such a home will have three main coverage areas: the structure, the owner’s personal belongings and liability against someone being injured on the property.
If the homeowner is paying off a mortgage on the home, the lender will require they carry insurance to cover the costs to fully rebuild the house. This will typically be the most costly component of the policy. Keep in mind that you’re only paying to cover replacement costs for the structure, not to recoup the market value of the home and land it’s built upon.
Size up coverage needs: Your insurance costs depend largely on how much coverage you buy or can do without.
Your insurance company will come up with the amount of coverage needed to fully replace your house and recommend you insure it for that amount.
Because construction costs are always changing it’s a good idea to review your policy annually to make sure your coverage hasn’t fallen below 80 percent of the cost to replace your home, suggests the National Association of Insurance Commissioners.
A detailed inventory of your belongings will help you determine how much coverage you need for your personal belongings. And if you need to buy additional protection beyond any policy caps.
The NAIC has some guidelines for conducting an inventory and a worksheet here: http://www.insureuonline.org/insureu_getready_newhome.htm .
Shop around: Many homeowners reach out to an insurance agent who recommends one or more insurers. Another option is to search your state insurance department website. It will typically list pricing information for the biggest insurers.
When discerning which is the lowest-cost policy, make sure you’re comparing the same coverage from carrier to carrier.
Hunter of the Consumer Federation of America also recommends finding a handful of the lower-cost carrierschecking their track record of consumer complaints on the NAIC website, https://eapps.naic.org/cis/.
Consider a higher deductible: A recent study by Insurancequotes.com found that raising the homeowners insurance deductible to $2,000 from $500 can lower the annual premium 16 percent, on average.
A deductible is the portion that is paid by the homeowner on a claim before the insurance policy kicks in. Still, don’t raise your deductible unless you have enough money to cover it in case you have to file a claim.