The most important consideration when shopping for homeowner’s insurance coverage is to insure according to replacement value, not fair market value. While the house itself might appreciate, your belongings, unless collectibles, will certainly depreciate and be worth nothing but salvage value in five to seven years after acquisition. In addition to common household goods and furnishings, you will also need to make separate list of what are known as “scheduled items.” musical instruments, jewelry, artwork, computer equipment and other high value objects. If your home is located in a geographical area with special hazards such as floods, fires or earthquakes, you may need additional insurance for these perils. Therefore before seeking quotes, your most important task is to make a complete inventory of your belongings, research each replacement value, and determine your insurance needs.
A. Shop Around
Premium cost vary widely. Solicit quotes from several reputable insurance companies. Ask your friends if they have ever had to make a claim and whether they were satisfied with the handling and outcome. Make sure the proposed policy includes all the types of coverages you need.
B. Raise Your Deductibles
Raising the deductible will reduce the premium. Compare premiums at various deductibles and then do the math. While catastrophes may happen, most claims are for smaller amounts. If you are not careful, you may find your premium savings to be very expensive in the long run. For example, suppose you raise your deductible from $1000 to $2500 to get a $50 reduction on the premium. Barring a true disaster, you would have to be essentially claim-less for 50 years to break even. If you had a $1500 loss in five years, you saved $250 only to pay an extra $500 deductible. You are down $250.
C. Consider Insurance Cost Before Buying A Home
Insurance companies evaluate the risk in order to arrive at the amount of the premium. If your home is low-risk, your premiums will be lower. Risk is reduced when wiring and plumbing are newer and when the overall structure is sound. Risk is lower in geographical areas not subject to special perils. You can save on insurance cost by buying a lower risk home.
D. Don’t Insure Land
Land value is not subject to the risk of theft or weather. Homeowner’s insurance does not cover land, so there is no point in including the value of the land when determining the replacement value of your home.
E. Increase Home Security
Naturally, premiums are lower on a home with less risk of break-ins, theft and fire. Make sure you have high quality locks, smoke detectors, and perhaps a security alarm system in place.
F. Stay With An Insurer
Many insurers companies reward loyalty and longevity with premium discounts. Choose your insurance company well, and stay with them.
G. Check Your Policy Once A Year
Compare your policy to your annually revised inventory. Look at the medical payout. Many homeowners have not increased the medical payments to keep pace with increased costs. A simple broken ankle caused by missing a porch step may easily cost $3000. Some homeowners have old policies with only $1000 for medical, totally inadequate in today’s health cost climate.
In 2007, the last year for which the Insurance Information Institute (III) has data, homeowners paid an average of $822 home insurance premiums per year. 66 percent of homes and contents were under insured. Belongings tended to be undervalued by 18 percent. Florida had the highest average premiums in the country at $1,534, and Idaho the lowest at $422.
Most home insurance policies include umbrella liability coverage to protect you in case of a law suit. Standard coverages are generally insufficient protection against a lawsuit. An umbrella policy is a good safeguard. If your current policy does not include umbrella liability, starting at $1,000,000, you can talk to your agent about adding it for an additional premium of around $200 or so.
Finally, do not put off making that inventory. If you ever have a major claim you will need it to substantiate your loss. You will need the same substantiation if you plan to take on casualty loss on your tax return. An inventory can be a major project. Start by listing items room by room. Later, add documentation such as photos, serial numbers, sales receipts, appraisals, purchase contracts. Keep at it little by little, and soon you will have a complete inventory. Store your inventory in a safe deposit box or elsewhere outside your home.