Here are a few suggestions regarding your homeowner's insurance coverage. It is also a good idea to review your policies with your agent every 2-3 years and call other companies for quotes on the same coverages.
By Susan Johnston | U.S. News – 3/13/2013
Nearly half of homeowners think the
real estate value of their home determines how much homeowners insurance they
need, and a third of them report buying less insurance to save money.
Those were the findings of an
Insurance Pulse Survey from the Insurance Information Institute -- and those
homeowners are making a mistake, says institute vice president Loretta Worters.
"The real estate value of a
home—that is, the price you can buy or sell it for—has absolutely nothing to do
with the amount of insurance needed to financially protect the homeowner in the
event of a fire or other disaster," Worters says. [See also on USNews.com:
If you reduce your homeowners
insurance coverage and then need to file a claim, you may be surprised to
discover that it doesn't cover the full cost of rebuilding your home. "In
fact," points out Mark Schussel, vice president of public relations for
Chubb Insurance, "a home may cost even more to replace (than it did to
buy) because of economic pressures." Upgrades like custom fixtures,
special trim or historic materials also increase your home's replacement cost.
In the most recent J.D. Power
insurance survey, conducted in 2012, 15 percent of policyholders did not carry
adequate coverage to rebuild their homes.
Instead of lowering your homeowners
insurance coverage, here are four other strategies to make sure you're getting
the coverage you need at a cost you can afford:
1. Increase your deductible. Although a higher deductible increases your upfront costs
if you file a claim, it can lower your premiums (assuming you can afford to pay
that higher deductible should you need to). "Insurance is designed to
protect you against significant financial harm," says State Farm
spokesperson Dick Luedke. "It's not as well designed to protect against
smaller losses that you can afford and not significantly change your financial
position." Worters says increasing the deductible from $500 to $1,000
could save you up to 25 percent on premiums.
2. Maximize your credits. Many insurance companies offer credits for safety features
like central station alarm systems, temperature monitors, or sensors that
detect water or gas leaks. If you live in a gated community or recently
renovated your home, your insurer may offer credits for those, so make sure your
insurance company knows about any renovations or new features. (Luedke points
out that if you use an insurance agent, he or she should make sure you're
getting all the credits you're eligible for.) Or consider adding these features
to increase your credits. "For a relatively modest price, you can add
smoke detectors, heat sensors, or temperature monitors to that central
system," says Schussel. "It may cost you a little bit of money
upfront, but it can save you substantially more money in the long run."
3. Bundle multiple policies under
one provider. Purchasing multiple insurance
policies (for instance, car and homeowners insurance) from the same provider
can lower your insurance costs. The savings vary depending on the company and
the state, but Worters says bundling your insurance policies could save around
10 percent versus purchasing policies from different companies.
4. Look for guaranteed or extended
replacement cost coverage. Although
it's best to have an accurate assessment of your home's replacement cost, if
you own a historic home or are concerned about the limit on your home insurance
coverage, guaranteed or extended replacement cost coverage could be a smart
idea. Although it can cost about 10 percent more to buy a guaranteed versus
actual cash-value policy, Worters says it's worth the extra cost in many cases.
[See also on USNews.com:
For instance, Chubb offers extended
replacement cost coverage on its homeowners policies (uncapped in most states),
meaning the policy would cover repairs or replacement of your home even if it
exceeds the policy's cost limits. "Let's say the property limit on your
policy is $500,000, but it costs $700,000 to replace your house," explains
Schussel. "Extended replacement costs would cover it regardless of that
policy limit, which is particularly key if you have an older home. You may be
required to upgrade to the current building code: the electrical systems, the
plumbing systems. That could be a substantial cost that you may not have
anticipated."
While homeowners insurance protects
against the possibility of fire or other catastrophic damage (and as mentioned
above, the real estate value and replacement value are not interchangeable), a
new insurance product is aimed at protecting homeowners against fluctuating
real estate values of their primary residence should they need to sell.
Released earlier this year in Ohio with plans to expand into several other
states, Home Value Protection covers up to 25 percent of the protected home
value.
After the first two years (during
which claims are subject to a deductible), if the local real estate market has
declined and the house sells for less than the protected value, the policy
covers the difference between the actual sale price and the protected home
value. "Most people insure things they cannot afford to lose," says
Scott Ryles, CEO of Home Value Protection. "And a lot of people cannot
afford to lose money on their homes."
The bottom line: Even if you're
tightening the purse strings, it may be time to revisit your insurance coverage
and consider how you're protected in the event of real estate fluctuations,
fire, or other disasters.