Understanding and Saving Money on Homeowners’ Insurance

The following is a guest post from Pete Briger. Pete serves as a Principal and Co-Chairman of the Board of Directors at Fortress Investment Group LLC. Fortress has become one of the preeminent investment management firms in the world and currently oversees more than $50 billion in assets. If you would like to write an article for Money Q&A, please visit our Guest Posting Guidelines page.

It pays to fully understand the types of homeowners’ insurance out there so that you can decide on the policy that is right for you and your family. By understanding the structure and terminology that goes along with the insurance industry, you’ll be in a better position not only to select the best policy for your needs but to create substantial savings for yourself in the long run. Don’t wait for your claim to be denied because you didn’t take the time to understand the policy you paid for or the money-saving options available to you.

Homeowners’ insurance can cost as much as $1,000 a year (or many times that for properties in high-risk areas), but it is a necessity when you apply for a mortgage. Most companies will not even consider extending a loan to a prospective homeowner without an agreement to carry insurance for the full value of the residential property.

When shopping for homeowners’ insurance, don’t forget that you need to guard against more than damage to your home itself. Liability insurance, which is often very reasonably priced, will protect you should someone become injured on your property.

Do Your Homework

Choose your insurer carefully. After you collect recommendations from family, friends, and co-workers, vet the possibilities by checking them out with your state’s office that regulates and keeps data, including complaints, on insurance companies.

In addition, check online insurance quotation organizations and consumer guidebooks that can give you standard price ranges for the kind of homeowners insurance you are interested in. Look for ratings of financial stability by consulting sources such as the reports compiled by the A.M. Best Company. Interview a number of potential insurers and ask them how they can help you keep premium costs low.

The Right Value

Be aware of the differences among various types of replacement value for your home and its contents. Some homeowners’ insurance policies will only give you the “actual cash value” or “fair market” value in the event you need to replace your home or belongings. These terms mean that the company will award you the current value, minus depreciation and wear and tear. In this case, you will even need to document the worth of the items at the time they were destroyed.

Most experts advise homeowners to purchase insurance with a guaranteed replacement value. This means that the insurer will fund the complete rebuilding of your home, without regard to current costs or depreciation, should it be destroyed in a disaster. This guaranteed replacement value is your hedge against inflation in construction costs over time.

When you purchase a guaranteed replacement value policy, make sure to include your home’s contents as well as the structure of the dwelling itself. And keep in mind that, if your home’s value has appreciated considerably above the level of coverage, an insurer will not typically pay more than 20 percent above the value of your policy, even with guaranteed replacement.

Important Tips To Keep Costs Down

• Package your homeowners’ insurance with your auto insurance or another policy from a single company. This can result in a 10 percent or greater discount for all of the policies you maintain with that company.
• If you are in the market for a new home, consider the insurance savings you could get by choosing a home with newer wiring and plumbing, one in a community with a nearby professional fire department, or one with construction designed to withstand the most common types of disaster in your part of the country.
• Check out the CLUE report on a potential home before you buy. This Comprehensive Loss Underwriting Exchange document records the history of insurance claims against a particular property.
• Consider raising your deductible to lower your premiums. The downside is that you will need to prepare to absorb smaller damage-related costs yourself.
• Pay off your mortgage and you may find that insurance companies consider you a better insurance risk because they believe you will then be a more cautious and careful homeowner.
• Keep your credit solid and monitor your credit report. Insurance companies are increasingly using credit scores to price homeowners’ insurance.
• Lower your costs as you increase your safety by installing smoke detectors and burglar alarms. Adding a smoke alarm to an older home can gain you 10 percent in insurance savings. Check whether your insurance company recommends any specific companies or types of devices.
• Disaster-proofing your home can also cut costs. Take your location into account and install storm shutters, reinforced roofing, or earthquake-related retrofitting. You may also gain savings by upgrading your home’s heating, electrical, and plumbing infrastructure as a means of safeguarding against fires and flooding.
• When you plan renovations and upgrades to your home, calculate the associated rise in insurance costs. For example, installing a pool or other potentially hazardous feature can raise your premiums by 10 percent or more. The building materials you use are also important: flammable materials usually result in an insurance increase, whereas steel and concrete construction can actually lower your premiums.
• If you have a good insurer, stay with that company and you can benefit from any long-term customer discounts.
• Finally, do an annual comparison check of your current homoeowners insurance policy against others on the market to make sure you continue to get the best deal available. Likewise, review your policy to make sure you are not paying for insurance on items, such as artwork, whose value has depreciated.

The following is a guest post from Pete Briger. Be sure to check out his profile on Quora to learn about Pete Briger and Fortress Investment Group LLC. If you would like to write an article for Money Q&A, please visit our Guest Posting Guidelines page.