How to lower home insurance costs: 6 ways to save money
As a new homeowner, I recently had to buy a homeowners insurance policy. And as a personal finance writer, I tried to take my own advice and “shop around.”
To be honest, it was a pain, and the rates I was getting on my own were way too high. Maybe it wouldn’t have been so bad if I wasn’t also trying to close on a house. In the end, I found an independent insurance agent, and she saved me hundreds of dollars and lots of headaches.
But I also learned that there were things I could do to help her keep my premium low year after year. For instance, I had planned to install an ADT security system, which I later learned would lower our premium.
How to Save on Homeowners Insurance Rates
So if you’re in the market for a new policy, here are six ways to make sure you’re getting the best possible rate:
1. Make sure you aren’t over-insured
Being under-insured can be a big problem when disaster strikes. But being over-insured means you’re wasting your hard-earned moolah. So the ideal situation is to have just the right amount of coverage. So how do you do that?
Review your policy when it’s up for renewal each year. Specifically, make sure to review any floaters, which are extra insurance for items not fully covered in a standard homeowner’s policy. Examples include things like expensive electronics or equipment, valuable jewelry and artwork. If you no longer own the item or if its value has lowered, cancel or reduce the floater.
2. Reconsider your deductible
A deductible is the amount of money you have to pay before your insurance policy kicks in and pays the claim. And the lower your deductible, the higher your insurance premium. According to the Insurance Information Institute (III), today most insurance companies recommend a deductible of $500 or more. But if you can afford to raise your deductible to $1,000, you could save as much as 25 percent. And, advises the III, don’t forget that you might have more than one kind of deductible. For instance, if you live in a disaster-prone area, like one prone to windstorms, hail or earthquakes, your insurance policy may have a separate deductible for those specific types of damage.
3. Clean up your credit report
Like it or not, when it comes to insurance, your credit report is up for grabs. The Fair Credit Reporting Act (FCRA), states that insurance companies have a “permissible purpose” to look at your credit information without your permission. And since insurers have found that credit history is a reliable predictor of how risky someone is to insure, they use that information to determine whether or not to offer you a policy, as well as how much to charge for your premium.
So besides all the other important reasons to monitor your credit report, doing so can also yield you a lower premium on your home insurance, or at least prevent your premium from going up. And be sure to order copies of your credit reports once per year, since you can be sure insurers are checking it before you renew.
For instance, a 2007 report by the Arkansas Insurance Department found that in 2006, a total of 457,982 policies in the state were written or renewed that involved the use of credit as one of the factors weighed in determining the premium. Of those, 32.3 percent resulted in the premium being decreased, and 9.2 percent resulted in the premium being increased. In the remaining 58.5 percent, credit was a neutral factor.
According to the III, in most states the insurance company has to advise you that they’re raising your premium because of red flags on your credit report. But it’s best to just check your credit on a regular basis and correct errors quickly to make sure your record is always accurate.
4. Make your home Fire Marshall Bill-proof
Fire Marshall Bill was a Jim Carrey character on the sketch show In Living Color, and his safety lessons, which he demoed on himself, resulted in fires, explosions, and loss of limb.
You probably know better than to toss lighter fluid on a burning pipe, but you might not know about less ridiculous safety measures that could lower your insurance premium. Talk to your insurance agent or rep to find out if you can save money by doing things like:
- Making your home more windstorm-resistant, such as adding storm shutters.
- Updating your plumbing and electrical systems to reduce the risk of water and fire damage.
- Increasing your home security with smoke detectors, burglar alarms or dead-bolt locks.
These aren’t cheap updates, so make sure they’ll lower your premium enough to make it worthwhile and that your updates will qualify for the discount. For instance, an insurer might have a list of qualifying alarm systems. Realistically, expensive updates like these aren’t usually done solely to save crazy money on insurance premiums. They’re typically things you want to do to make your home safer, or as Fire Marshall Bill would say, less “Dtuhhh-dthuhhh…DEADLY!”
5. Shop around every year
We talked about this earlier, but really and seriously, you have to shop around if you want to make sure you’re getting a great rate. Ask your network for recommendations, and check out the National Association of Insurance Commissioners (www.naic.org) for help finding an insurer in your area. Pay special attention to the consumer complaint information, since price isn’t the only thing you want to consider when deciding on an insurer.
Or find an independent insurance agent, who shops around for you. Before finding my agent, my auto and home insurance quotes were in the $1,000-$1,300 range. Then I employed her services and she found a great policy from a reputable company for just $700. That’s some serious savings.
And speaking of auto and home insurance…
6. Consolidate to save more
Some companies that sell multiple types of insurance, such as homeowners, auto and liability, will knock a percentage off your premium if you buy two or more policies from them. It can save you anywhere from 5 to 15 percent, according to the III. Just make sure the combined price with a discount is actually lower than buying separate policies from different companies.
Readers, can you add anything to this list? How have you saved money on your home insurance policy?
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There are 32 comments to "How to lower home insurance costs: 6 ways to save money".
Great tips! I have my auto and home insurance bundled through StateFarm.
I was recently looking into moving to Geico based on a MMM article. When I looked for a comparison and increased our deductibles as this article suggests, I will be saving somewhere in the neighborhood of $600 per year!!!
It’s on my to-do list for today to call our homeowner’s insurance company. We just got the renewal and it’s over $100 more than last year! I have to look more closely at it, but I think they have our house valued at $40-50,000 more than fair market value. They did this last year, too. I may start shopping around if they keep this up.
Double-check your policy to be sure, but I am pretty certain that you aren’t insuring your home for fair market value. Or for it’s tax-assessed value.
You are insuring the cost to repair or rebuild your home in the event of a loss. That’s the cost of the lumber, drywall, copper pipes, the gas that the work crew needs to get back and forth to the site each day, etc. Those costs almost always go up.
You are absolutely right. I called the insurance company today and confirmed what was obvious once I compared last year’s paperwork with this year’s: there was a sizeable rate hike in our state by this company. So we are considering raising our deductible to $2500 to offset the premium increase. I would seriously debate whether to make a claim for something less than $2500 anyway.
Some good stuff here. We haven’t shopped around for home or auto insurance in a while because the insurer we have has always been great whenever we’ve had a claim. I see that I can get cheaper rates elsewhere, but the security of knowing that my claims will be handled well is too important for me to pass up. That is, after all, the whole point of insurance.
Also, although these tips are definitely good ways to reduce the cost of insurance, make sure you don’t skimp on the personal liability coverage. While property damage can be expensive, a lawsuit can be even more expensive. Full liability coverage, and possibly even an umbrella policy, are things that should definitely be considered.
I was coming here to say exactly this. We have our car insurance, home insurance, etc., through one company. We *could* get a lower rate, but you know what? We like our insurance company a whole lot. They are easy to work with, extremely professional, and help us out. That peace of mind goes a long way, and it’s worth much more than the amount we’d save going somewhere else.
While it’s great to shop around and get a low price, you also have to realize you get what you pay for.
Valid point but also remember that just because you love your agent or insurance company, doens’t mean you don’t deserve a competitive rate. You can still shop around and if quotes are dramatically lower, consider asking your current company if they will lower your rate. If you’re a long time customer and/or have few claims, they’ll want to keep your business.
We would like to lower our home insurance, but the problem we have is left over knob and tube wiring in our old home. Lots of insurers won’t insure homes that have this. I guess we could look into getting rid of it, but stupid us blew insulation on top of it in the attic. This is apparently a big no no. Eons ago J.D. had an article on here about how he did the same thing. He ended up removing the insulation to fix it, but several local electricians have assured us that it is highly unlikely to cause a fire.
Anybody use an insurer that allows knob and tube wiring? If so, I would appreciate knowing who. We have Allstate.
Be careful about shopping around too frequently – every year is too often – because it may work against you if you have a claim. From the company perspective, who do you think they are more likely to be loyal to – a one-year customer who just had a large claim, or a five-year customer who had the same claim? You don’t want them to non-renew you. A non-renewal could mean that you have to seek coverage from the excess market (read: higher premium, less coverage).
Also:
– Pay your bills on time, and never let your coverage cancel for non-pay. There is a lot of evidence that suggests customers who have bill-pay issues also have claim frequency issues, and companies can non-renew you for too many late payments, and they can decline to reinstate coverage if you do cancel. Either of those things can make it harder and more expensive to find coverage.
– Be judicious with claim submission. Just because you have a $1000 deductible doesn’t mean you should call the insurance company every time you have $1200 worth of damage. Too many claims will lead to non-renewal. You want to make sure you have coverage for the really big stuff.
– Other loss prevention devices to consider are a water shut-off valve that will shut off the water to the whole house in the event of a leak or burst pipe, and a permanently installed back-up generator that will run the heat and alarm system in the event of a power failure.
Don’t smoke / quit smoking. Don’t adopt a dangerous dog breed. Don’t install a pool. All those will also lower your premiums.
I keep my deductible lower in home insurance because I cannot do any home repairs myself. If a tree falls and breaks my wooden fence I would not be able to repair it myself.
Really? You can call your insurance company to report a claim, but you couldn’t call a repair man to fix the fence? Handling damage yourself doesn’t necessarily mean pick up a hammer. It just means paying the bill yourself.
Yes, this is odd. The one claim we had on our house, they appraised the damage and cut us a check. We still had to contact someone to fix it and deal with the repairs.
Much better use of your higher premium for lower deductible might be to join Angie’s List for a month when needed or ask your neighbors for recommendations!
These are great tips. We just recently lowered our payments by raising our deductible. As long as you have the money in some emergency fund, then there is really no reason not to raise your deductible. We have ours bundled with our car insurance too, so that saves us another 10%.
-ask for as many discounts as you can get. Usually the policy will list the type available for both home and auto. Typically if you are married and older with good credit, you’ll qualify for the best rates. But having an alarm system save us like $50 a year. All the discounts add up. I double check my policies yearly to make sure that I am getting all the discounts available. Typically premiums go up almost yearly by a certain % due to inflation riders which is typically tied to the replacement cost of your home, not market value, regardless of whether its cheaper to buy a new home due to falling values.
-I have elected for guaranteed replacement cost insurance since many policies don’t pay the full value to rebuild your home in case of a complete loss. You can be left from tens of thousands to some case 100’s shy of rebuilding your home.
-Also I was looking at an umbrella policy but just elected to raise the liability amounts to both home and auto to 1 million. My home only increased $50 a year raising it from 300k to 1 million. Ended up being last than 1/2 the cost of the umbrella although an umbrella covers slightly more things like libel, slander etc.. As your assets increase you need more insurance to protect them.
-Talk to your insurance agent every year, I usually have the play with deductible #s, etc, different scenarios to determine how to keep costs down. You still have to shop every 4-5 years anyway and possibly switch since they lowball new customers to get them on board but try to stay with companies that have good service and claim payment ratings.
Please, please, stop doing the insurance company’s false marketing work for them. Higher insurance risk is CORRELATED with poor credit. No cause and effect has EVER been established. But that doesn’t stop insurance companies from using this to increase our rates.
Here’s an example of a false correlation: It is observed that the more firemen there are fighting a fire, the bigger the fire. Therefore firemen cause fires to get bigger.
Silly, right? Well here’s another correlation that probably killed some people — it was observed that women who took hormone replacement had lower rate of heart problems. Therefore our medical experts assumed that hormone replacement saved lives and recommended HRT to every menopausal woman. Only to learn years later that long-term HRT in fact does the opposite (increases heart problems).
Life is complicated — correlation is for lazy people wanting to make it simple. And also for insurance companies wanting an easy excuse to increase rates. Show me any study ever that has proven that poor credit indicates poor risk. It may seem like a no-brainer, but the examples I’ve given here prove we shouldn’t be that intellectually lazy – or allow our institutions to be.
Financial writers should understand this difference between collaborative and cause and effect evidence, and certainly shouldn’t participate in the insurance companies’ false advertising.
That’s my soapbox for the day – glad I got it out of my system early.
It doesn’t matter if you believe credit score is not an accurate predictor of insurance risk. It doesn’t even matter if every study ever produced suggests credit score is not an accurate predictor of insurance risk. All that matter is many insurance companies believe it and use credit scores to determine premiums. So, if you want a lower premium, do as the writer suggests an clean up your credit.
Insurance companies could start determining premiums based on what color socks you wear. Again, it may or may not have merit. But, if you want a lower premium wear the “right” socks.
Great points all around. A question: could it be that a high insurance premium insurance is based on coverage for some value that your home peaked at but no longer appraises for?
In my last round of insurance renewals (home, rentals, cars) we raised deductibles on all to $1000 and raised liability limits to $1 million. I was pleasantly surprised that the savings on the higher deductible more than offset the cost of increased liability insurance.
Bumping your home up to current safety regs is not only a good money-saving technique, but may very well save your life one day.
ADT, ugh!
Good move getting the security system discount, but you can do better than ADT. They’re among the highest-priced out there, and with the greasiest reputation.
Watch out for the early cancellation penalties and the auto-renew contracts. If they try to raise rates on you, you can call and threaten to cancel and they’ll lower it almost 100% of the time (even if you have a contract still in place) — so basically they’re sticking it to the customers that don’t pay attention.
Do some googling for alarm monitoring, now that you have the equipment installed. There are companies that will do monitoring for $10/month (phone line), or in my case $18/month for internet+cellular backup. With your own equipment, now that you have it.
The advice to shop around is great. This advice also applies to auto insurance as well. Once they have you insurance companies tend to inflate the prices.
Great tips!
My property has a workshop building, turned in-law suite which my mortgage company forced me to insure because it was part of the appraised value.
They told me if/when I refinance I can ask for the property to be appraised without the in-law suite, and as long as it’s still at least 80% LTV (or I can pay additional to reach 80% LTV) I can decline coverage on it.
I know some may think it’s not smart to do that, but I don’t use it as an in-law suite (it’s not up to code and there’s already so many problems with it, it needs a gut reno to be live-able), so I use it as a storage garage. Liability covers the entirety of the property, so I’m good there. But insuring that building is like keeping collision on a beater. AFTER I’ve renovated it and it’s worth protecting, I would re-insure it.
Also, I never opt for personal property coverage. In the case of a theft or catastrophe which takes all my stuff, the only things that would matter to me would be irreplaceable and cannot be assigned a monetary value;
photos, letters/ cards, family heirlooms, info on computer and camera.
I guess that’s one benefit of not owning many valuable things (or not caring much about stuff in general).
Shop around? Absolutely need to do this, but it is so much easier just to pay the renewal.
Great tips.
Great tips. There are so many agencies selling insurance that it is nice when they give you a free quote to be able to compare. I found a good agency at http://www.png-insurance.com/ that showed me how bundling could save me money.
Great advice. I just changed insurance companies this week for home and auto. I included them in a blog article I just published on way to save money. Just doing that, pulling the plug on pay-TV and refinancing my house, I will save more then $34,000 in ten years. http://getcontrolofyourlife.org/2013/06/27/how-i-made-34000-without-really-trying/
You can safely remove the costs for your home’s foundation and driveway as well as land from replacement value since these are extremely unlikely to suffer loss.
These are all great tips on lowering your home insurance. I agree that having a security system can help reduce the cost of your insurance. Check to see what discounts the insurance company gives for what type of home security system. For example, do you get more of a discount for having a monitored system? What about a system where you can place sensors on sensitive areas such as a gun cabinet and jewelery box?
Joe Strada
Owner Del-Air Security(www.delairsecurity.com)
Great article!
I agree with the fact that we should reconsider the deductibles. I recently purchase the home insurance from Western Mass Auto Insurance and they advised me to increase my deductibles and it worked so i would suggest everyone to consider it.