Five Ways to Save Money on Your Home Insurance (And That Require Only a Little Legwork)

I’ll bet that, like almost everyone I know, you complain like heck about the cost of your home insurance -- usually once a year when you get the annual statement. But you probably just pay it anyway because it’s included in your mortgage escrow payment ... and don’t think about it again until the next bill rolls in.

It’s high time to break that cycle, and Weiss Ratings can help you do so! With just a little extra research, you’ll often find that you can save quite a bit. That’s because although you might think that your home insurance costs are relatively stable, or that your insurance will cost pretty much the same as your neighbors’ policies do, it’s a whole lot more complicated than that.

Let’s start with the basics: Insurance companies take a wide range of factors into consideration when determining how much you’ll have to pay in premiums. These include ...

 Amount of coverage - The higher the policy’s maximum coverage limits, the higher your premium will be. You may be able to get away with the minimums required by your lender. But go ahead and ask for pricing on replacement value limits before making that decision.

Don’t forget that you don’t need to insure your land, only your home. Depending on the other factors listed below, you may be able to substantially increase your protection for a very modest increase in your premiums.

 Amount of deductible - The deductible is the portion of the claim you must pay before the insurance company will pay the remainder. Deductibles typically range from $250 to $2,000. As you might expect, the higher the deductible, the lower your premium will be.

 Note: if you have wind coverage on your policy for damage from a hurricane, your policy will have a separate (and most likely higher) deductible specifically for that peril. Usually, this deductible is expressed as a percentage of the insured value of your home. If you have this separate deductible, the percentage and the amount should be listed on your declarations page.

 Location, Location, Location – This is where your neighbor and you could face some commonality in insurance premiums. Where your house is located will determine how much you will pay.

There are many items that are taken into consideration when looking at location-related premiums: Warm climate or cold? Urban or rural? Is there a fire department and/or fire hydrant nearby? Is your house on a river or oceanfront?

 Protection - This primarily pertains to protection from fire and theft. Do you have smoke detectors? Do you have a sprinkler system? How far is the nearest fire hydrant and fire station? Do you have an alarm system? Is it monitored?

Construction - What your house is made of makes a difference as well. Is it wood (frame) construction or is it brick (masonry)? Did the builder use fire-resistive or noncombustible materials?

 Other items - Your insurance company will want to know if you have a dog, and what breed it is, as well as if you have a pool, and how it is protected. These are items that add some risk, and can increase your premiums. Some insurance companies will not insure people with certain types of dogs.

 Credit Scores - Insurance companies are also using credit scores as a predictor of future claims activity.

 Note: The law does not allow an insurer to use your credit history as the sole factor in determining your premiums. Your credit score can, however, be used against you to decline coverage or as one of several factors used to set your premium.

Not all companies use credit scores. So, if your credit history is particularly bad, it’s all the more important that you shop around for a homeowners policy from an insurer that does not use credit as a factor in setting its premiums. This could easily save you hundreds of dollars per year.

Although these are the basic factors that every insurance company uses in setting its premiums, the amount you pay will still vary from company to company based upon each insurer’s underwriting model. Some insurance companies weight some factors more heavily than others.

In addition, one company may have had a high level of claims in a particular state, forcing it to raise premiums in that state. But another company in the same state may have had a low level of claims there, allowing it to lower premiums in that state.

So, what else can you do to save money on a policy?

 Compare prices regularly - Shop your policy around by getting premium quotes from other insurers every year or two. You don’t necessarily have to change companies, but this is generally a worthwhile exercise. It’s relatively easy to do and you could find another insurer that will save you a significant amount of money on your homeowners insurance.

 Use the same company for homeowners and auto insurance - Almost all insurers will give you a discount on your premium if you purchase insurance for both your home and your car from them. Be careful though. Sometimes, even with this discount, you could end up paying more than you would by shopping for the least expensive coverage from two separate, unrelated insurers.

 Take advantage of group discounts - If you’re a member of a national group like AAA, AARP, AMA, ABA, etc. ask your agent if there are any special discounts for your group. And if you or your parents were in the military, be sure to get a rate quote from USAA, a company that specifically caters to military personnel.

As with other discounts, you’ll want to make sure that the discounted policy is less expensive than your other alternatives. In other words, don’t buy it just because the insurer is giving a discount to your group.

 Use your clean credit report to your advantage - Depending upon the laws in your state, insurance companies can use your credit history to grant or deny coverage, or as a factor in setting your premium rate. Be sure to get a copy of your credit report and make sure any erroneous information is removed (this is a good idea even when you’re not shopping for homeowners insurance).

You’ll usually be given the option of whether or not to grant the insurance company access to your credit report. So, if you have decent credit, let them see it and it could save you some money.  

 Pay your premium in advance - If you can afford it, pay your full annual or semi­-annual policy premium up front. Some companies actually give you a discount for doing so, while others will charge an extra fee ($3 to $5 each month) if you elect to pay your premiums monthly.

For all of these reasons, we strongly encourage you to comparison shop for your homeowners insurance policy. If you’re interested in saving money ... and who isn’t ... it definitely pays to put in the legwork -- because you’ll find that a little effort can go a long way!

In the meantime, as always, be sure to check your insurer’s safety rating on the Weiss Ratings website.

Think Safety,

Gavin Magor