Money Matters (Part 2) Hidden Costs and Savings in Homeowners Insurance
Author – Roberta Gibbons, CIC, CISR
Your home is your pride and joy, the place where you and your family will gather and make memories. For many, a home may also be your biggest financial asset. How do you adequately protect this asset without draining your pocketbook in the process? Today, we are going to dive into some of the areas that drive up the cost of homeowners insurance and ways that you can help to minimize those costs.
Homeowners Insurance Pricing Factors
Various factors go into the rating of a homeowners insurance policy, such as:
- Replacement cost value of your home: This is the cost to actually rebuild your home with materials of like kind and quality. It is important to note that this is not the cost to sell your home (market value). Most companies require that your home be insured to 100% of its estimated replacement cost amount in order to qualify for the replacement cost coverage endorsement.
- The age of the mechanicals in the home: Specifically, companies are concerned with the age of the following mechanicals: Roof, Electrical, Plumbing, and/or Heating. In order to secure the best coverage for your home, most companies require that your roof needs to be replaced within 15 years and furnaces should be replaced within 20 years. Electrical systems should be at least 100 amp circuit breakers.
- Claims History: Most companies will not accept a home with two or more non-weather related claims. In addition, non-weather related claims are subject to claims surcharges on a homeowners policy.
- Deductibles: The standard homeowners deductible today is $1,000 per occurrence.
- Coverage endorsements: Optional endorsements may be available on the homeowners policy such as Sewer/Water Backup, Underground/Service Line/Buried Utility Line coverage, scheduled/blanket property (for higher valued items such as jewelry), dwelling and personal property replacement cost, loss assessment coverage (extremely important for condominium or townhome unit owners), and identity theft coverage.
Hidden Savings in Homeowners Insurance
While there are many factors that drive up the cost of homeowners insurance coverage, there are almost as many ways that you can save money on your policy. Here are a few:
- Multi-policy (“bundling”) discount: Having multiple policies with the same company (especially having the automobile and homeowners insurance together) can save you 10-20% on your homeowners insurance premiums.
- Deductibles: The higher your deductible, the lower your premium. Most homeowners these days are carrying deductibles of $1,000 or $2,500. However many companies will provide substantial discounts if your deductible is $5,000 or more.
- Mechanical updates: Many companies provide discounts on your homeowner’s policy if the roof and/or furnace have been updated within the last ten years. Additional discounts are available if you choose to have a Class IV (hail impact resistant) or steel roof installed in lieu of the more common asphalt/composite roof.
- Alarm Systems: Most companies provide additional discounts on the policy for the installation and 24/7/365 monitoring of a central station burglar and fire alarm system. In addition, if you add in the low temperature and/or water flow monitors, you could be eligible for additional credits as well.
- Loss Free Credits: Many companies now offer additional credits if you have not filed a claim within the last three to five years.
- Affiliation/Association Discounts: If you belong to groups such as AARP or AMAC, if you have a membership in a trade organization such as the Minnesota Dental Association, Minnesota Teachers Association, etc. or if you belong to AAA or any banks, credit unions or alumni associations, there may be additional credits available on your policy.
Homeowners insurance doesn’t have to be confusing or expensive. At Dyste Williams, we take great pride in helping our customers not only understand their personal insurance coverages, but also getting that coverage at a fair and competitive cost. Our experienced advisors look forward to assisting you with your personal insurance needs.