Homeowners' insurance isn't a luxury, it's a necessity. In fact, most mortgage companies won't make a loan or finance a residential real estate transaction unless the buyer provides proof of coverage for the full or fair value of the property (usually equal to the purchase price). In this article, we'll show you some simple actions you can take to make sure your homeowners' insurance is sufficient for your needs.
Homeowners' insurance can be very expensive. Those that live in high-risk areas, such as close to major waterways, along known earthquake fault lines or other high-claims areas will pay the most for coverage. In fact, those in high-risk areas are often forced to pay annual premiums in the many thousands of dollars. But even homeowners in relatively sedate, suburban neighborhoods (with property values around the national average of $210,000) could pay between $500 and $1,000 a year for a basic policy.
The good news is that although you can't (and shouldn't) avoid purchasing homeowners' insurance, there are ways to minimize the cost.
Here are six ways to make sure you get the right coverage and consequent compensation for your home:
1. Maintain a Security System and Smoke Alarms
A burglar alarm that is monitored by a central station, or that is tied directly to a local police station, will help lower the homeowner's annual premiums, perhaps by 5% or more. In order to obtain the discount, the homeowner must typically provide proof of central monitoring in the form of a bill or a contract with the insurance company.
Smoke alarms are another biggie. While they are standard in most modern houses, installing them in older homes can save the homeowner 10% or more in annual premiums. Of course, even more importantly, they could save your life!
2.Raise Your Deductible
Like health insurance or car insurance, the higher the deductible the homeowner chooses, the lower the annual premium. However, the problem with selecting a high deductible is that smaller claims/problems such as broken windows or damaged drywall from a leaky pipe, which typically will cost only a few hundred dollars to fix, will most likely be absorbed by the homeowner.
3. Look for Multiple-Policy Discounts
Many insurance companies give a discount of 10% or more to their customers that maintain other insurance contracts with the company (such as auto or health insurance). Consider obtaining a quote for other types of insurance from the same company that provides your homeowners' insurance. That means that if you use Allstate ( ALL - news - people ) for your car insurance, you might save with two annual policy premiums. Several insurance companies, including State Farm,Berkshire Hathaway-owned ( BRK - news - people ) Geico and Travelers Insurance--part of Travelers Companies (TRV - news - people )--offer two-policy discounts.
4.Plan Ahead for Construction
If the homeowner plans to build an addition to the home or another structure adjacent to the home, he or she should consider the materials that will be used. Typically, wood-framed structures (because they are highly flammable) will cost more to insure. Conversely, cement or steel-framed structures will cost less because they are less likely to be damaged or destroyed by fire or adverse weather conditions.
Another thing most homeowners should consider, but often don't, is the insurance costs associated with building a swimming pool. In fact, pools and other potentially injurious devices (like trampolines) can drive annual homeowners' insurance costs up by 10% or more. This may seem like a small price to pay given the enjoyment these items bring, but it is still something that should be considered by the homeowner prior to purchase or construction.
5. Pay Off Your Mortgage
Obviously this is easier said than done, but homeowners that pay off their mortgage debts will most likely see their premiums drop. Why? It's simple: The insurance company figures if you own your home outright, you'll take better care of it.
6. Make Regular Policy Reviews and Comparisons
Investors should, at least once per year, compare the costs of other insurance policies with their own. In addition, they should review their existing policies and make note of any changes that might have occurred that could lower their premiums.
For example, perhaps the homeowner has disassembled the trampoline, paid off the mortgage and installed a burglar alarm or a sophisticated sprinkler system inside his or her home. If this is the case, simply notifying the insurance company of the change(s) and providing proof in the form of photos or receipts could significantly lower insurance premiums.
Look for changes in the neighborhood that could reduce rates as well. For example, the installation of a fire hydrant within 100 feet of the home, or opening of a fire substation within close proximity to the property may lower the homeowner's annual premiums.
