Learn What You Can Control
Many of the unfortunate events that could impact our homes—from natural disasters to an electrical fire—are beyond our control. That’s why we purchase home insurance: to protect our loved ones and our property from unexpected loss and damage. Yet factors that affect the cost of insurance are (or could be) within our control. Homeowners can make their monthly payments more manageable, no matter the age or location of their home, by it taking steps to reduce risk. Read on to find out what you can do to bring down your homeowners insurance premiums.
Location, Location, Location
Where you live matters when it comes to home insurance rates. Bankrate.com crunched the numbers and found that Oklahoma has the highest average annual premiums, while Hawaii has the lowest. This is because standard Hawaiian home insurance doesn’t cover hurricanes, which require a separate policy. As well, homeowners in California, Florida, and along the Gulf and Atlantic coasts see higher insurance rates as a result of storm frequency and insurance fraud. But it’s not only your state that determines the cost of home insurance; rates vary by city, by neighborhood, and even by street. If you live in a higher crime area, your rates will probably be higher too. The good news? If you install security cameras and alarms, your insurer may issue you a rebate.
Home Age and Construction
The older your home, the more costly it is to insure. Older homes require more upkeep and are more susceptible to damage from flooding and storms. But age isn’t the only thing to consider. Home construction and materials are equally important and pose different risks. Brick, stone, and new aluminum siding are more resistant to fire and the elements. Wood, in contrast, is a greater liability and may cause rates to increase. Also consider the age and conditions of your roof, which is often a concern to insurers. Replacing or repairing a roof can reduce your home insurance premiums. While discounts vary depending on your policy, look for a 5 to 35 percent reduction for roof upgrades.
Remodeling and Risk
While home remodeling certainly adds value to your property, renovations like additions, a new kitchen, and other major improvements can also add dollars to your premium. Quality materials and luxury add-ons (such as a swimming pool) are pricier to replace or fix if damaged. And maybe think twice about putting up a trampoline. Trampolines and other such "attractive nuisances" incur a higher risk of injury, especially to kids, and can cause insurance rates to jump.
Working from home is more prevalent than ever. If your home office consists of just you and a computer, it’s unlikely you will need additional coverage or will see a bump in your rates. If, however, you have a fully fledged home business, you may need additional coverage for inventory, business vehicles, electronics, and other equipment. This is especially true if you have clients, contractors, or customers coming to your home on a regular basis. If you are incorporated or function as a trust or limited liability company (LLC), you can often extend or tailor your homeowner insurance to protect the interests of both the corporate entity and the residents. In other instances, you may need to take out a commercial insurance policy. It’s best to speak with an adviser about your specific situation.
Marital status can directly impact your home insurance premium. If you’re single, you may be seen as more of a risk, because married couples tend to file fewer claims on average. Also pay attention to your personal credit and claims history. Insurers will look into your payment history, outstanding debt, credit history length, and pursuit of new credit, as well as the types of credit you have. And if you’ve filed an insurance claim in the past that flags you as a potential risk, you may face a 10 to 40 percent bump in your rates.
Likelihood of Fire
Live near a fire station? Lucky you! The cost of your home insurance may decrease by 4 percent. But if you live in a rural area, or if you're farther from the local fire department or hydrant, your fire protection rates may climb. The same goes for properties with wood-burning stoves and real fireplaces. Insurers view these luxuries—which homeowners in colder climates may consider necessities—as fire risks, and may increase your premium by 2 percent. To beat the heat (and the price hike), make sure your stove meets code requirements, and was installed by a licensed contractor. Also install smoke detectors throughout your house.
Beyond basic coverage, there are at least seven different types of homeowners insurance, and the rates are generally higher for more comprehensive plans. Some folks go with HO-2 coverage, the second to lowest level. These relatively cheap “broad form policies,” protect your property and valuables from 6 named perils including fire and lightning, freezing of household systems, and accidental damage caused by artificial electrical current. Most Americans (about 79 percent, as of 2017) go with HO-3 “special form” policies that cover all risks, except for excluded perils (like government action, flooding, and war). HO-5 “comprehensive form” policies offer, among other benefits, broader coverage for personal property. This level of coverage costs more and is best suited to high value single-family dwellings.
A Low Deductible
The deductible is the amount of money you will pay out of pocket before your insurance kicks in. Typically, the lower your deductible, the higher your monthly payments. If your home is in a temperate region and not at high risk of hurricanes, fires, or other natural disasters, consider raising your deductible to bring down your monthly payments. Basically, it’s your call: How much risk are you comfortable with, and how much are you willing to pay for loss or damage?
Cats and smaller animals (rabbits, guinea pigs) aren’t a big concern to insurance companies. But dog breeds with a reputation for aggression—including Dobermans, Rottweilers, and pit bulls—may be on your insurer’s restricted list, meaning that any damage by your dog won’t be covered. If you own, or are thinking of owning, a breed that may qualify for restricted status, be sure to ask your insurer a probing question: Do you have any restrictions on dog breeds for your pet coverage? It’s possible to get an exception, or find another way to insure your dog.
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