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This article has been reviewed by licensed insurance industry expert Moshe Fishman on 12/14/2023.
Being a homeowner is a big responsibility that’s worth every bit of time and energy that you put into it. In the long run, the good times you’ll experience and share in your home with family and friends is definitely part of the “American dream.”
But owning a home can also put a dent in your budget. There are lots of expenses including homeowners insurance premiums to help protect this huge investment. But there are some ways to help save you money on your rates.
If you’re not working in the insurance industry, you might be scratching your head trying to figure out why you’re being charged a certain amount for your homeowners policy. And if you compare your policy with someone else’s, you might even go into shock! And you are not alone. Many people wonder how premiums are determined, what qualifies for a discount, and why we’re charged these rates.
It’s important to remember that everyone’s situation is unique. Your coverages, amounts/limits, and premiums will be based on a number of factors including your home’s location, the value of your home, mortgage, and previous claim history.
These are some of the main factors that will determine your rate. But insurance companies may put a different price tag on your policy even when coverages and limits are equal in comparison. Insurers’ rates can vary from one to the next by hundreds of dollars so it’s important to shop around to ease your monthly payment.
Saving money on your policy premiums is possible but will take some initiative on your part. You can start by asking your current insurer if any discounts are available to lower your rate. It could be anything from a home security system to smoke detectors or storm shutters. Just be aware that not all insurers offer the same discounts.
You may find that you have to shop around for the best rates. Compare at least three different insurance companies and coverages. Be sure to compare similar amounts and details to be sure you’re getting the best policy.
In addition to size and age, where you live is a big deal when it comes to homeowners insurance and the rates you will pay. Depending on the state where your home is located, for example, average annual home insurance costs for $250,000 in dwelling coverage can vary from as low as $381 (Hawaii) to as high as $3,524 (Oklahoma). So, zip codes do make a difference.
And although there are no state requirements regarding homeowners insurance, not having coverage for such a big investment is very risky. And if you live in a state that is prone to extreme weather or natural disaster events, this poses a higher risk and will result in higher premiums.
So, depending on where your house is located, you may need to purchase additional coverages like flood or earthquake insurance. A standard homeowners policy does not typically include these coverages, but it may cover some forms of water damage. Hazards that may be prevalent in your state will warrant additional types of coverages that are not cheap, particularly if the risk is high in your region.
Lowering your insurance premium is possible if you consider some of the discounts and other ways to save money. Some may be obvious (like moving); others may not be so obvious (bundling policies). Here we’ve put together several cost-saving considerations to help in lowering your premiums:
According to a list by the Insurance Information Institute, the #1 way to lower the cost of your homeowners insurance is to shop insurance companies. You may be surprised how much you’ll save. It’s not unusual to have quotes vary by hundreds of dollars in average premiums.
Although you can check around town (literally), ask friends, talk with insurance agents, or contact insurers directly, you’ll find shopping online much easier. Otherwise, you could spend lots of time and energy contacting agents, following up, and waiting for quotes. But it’s not just about rates. You’ll want to compare coverages, limits, deductibles, and other details as well as the premiums.
If you are concerned about an insurance company’s financial stability, you can check with S & P Global Ratings and AM Best. In addition, checking with the Better Business Bureau and reviews can give you an idea of what customers experience at each insurance company.
Check with your agent or directly with your current insurer for any available cost savings if you buy both your homeowners and car insurance from them. Bundling multiple policies could typically save you 5% to 15% depending on the insurance company. You’ll need to have at least one qualifying policy with the insurer.
Also, be sure to compare bundling quotes and coverages with other companies. If you decide to change to a new insurer, you will need to cancel your existing policy with your old insurer who will then refund remaining premiums if applicable.
Most recommended deductibles on a standard home insurance policy are at least $500 but you may save a good percentage on your premium if you can afford to increase this amount to $1,000. Higher deductibles are usually reflected in lower premiums.
However, since the deductible is the amount of money you will have to pay to repair damages to your home, you’ll want to be sure you can afford it should something happen. This means you will be accepting more of the risk and should set aside money in case of an emergency to pay these out-of-pocket expenses.
Depending on your location, you may also have deductibles that are separate from your standard home insurance like wind and hail deductibles.
This one may be the most obvious way to save on your homeowners insurance rates, especially if your house is located in a high-risk area. The fact is that if your house is located in a state and region that is highly susceptible to hazardous weather conditions or natural disasters, you will pay more in premiums. Plus, you may need to purchase additional coverages for damage caused by events like floods or earthquakes.
If your house is located in a high-risk area, check with your agent to see if private insurance is available, which may save you money rather than buying coverage from the government. Whatever the reason for your relocating, be sure to check with your agent or insurance carrier before making your move.
When you protect your home against perilous events that can damage or destroy your home, insurance companies will see you as a lower risk. This includes improvements to make your home weather-resistant like storm windows or shutters. Remember, flood and earthquake insurance are not part of a standard homeowners policy but sold as separate coverages by some insurers.
So, preparing for the worst will not only protect your investment and lower your risk, but possibly lower your premium. For example, retrofitting your home if it’s located in an earthquake-prone area may reduce your rates.
Filing an insurance claim on your homeowners insurance could raise your rates. So, before filing a claim, consider the amount your insurer would have to pay out. If the amount is slightly more than your deductible, you may want to think twice about filing.
Check your deductible first to see how much you would have to pay out-of-pocket. You might find that if your claim amount is less or close to your policy’s deductible, it wouldn’t be beneficial for you to file.
Older, dated security devices and home features may become less dependable and more likely to sustain damage. By updating your windows with shatterproof glass or replacing your roof with fire-resistant materials, for example, you may yield a discount from some insurance carriers.
Systems and features that have aged are more likely to fail. Remember, wear-and-tear and neglect are not covered. Some ways to update include repairing or replacing your roof, installing new plumbing and electrical systems including automatic water shutoff, or installing wind-resistant features.
Also, consider water sensors to detect water leaks and thwart flooding. Reducing the risk of loss can yield lower premiums. Always check with your insurer first to be sure a discount is available for your specific updates. You will also need to be sure that any upgrades are covered by your current insurance limits and coverages.
Having a good credit score lets insurers know that you are responsible and may be seen as a lower risk. A good credit score is factored into insurance rates by many insurance companies, who use credit-based scores.
These scores take into consideration the number of credit accounts you have, your payment history, the types of credit accounts you have, and whether you have reached your credit limit on one or more accounts.
So, the better your score, the better your rate. If your rate is raised due to your credit, verify if the information your insurer used is accurate. Most states require insurers to advise you of their action when it affects your premium. Paying your bills on time, lowering debt, and checking your credit score regularly will help protect your credit history and standing.
Considered liability risks to your insurance company, trampolines, pools, playground equipment, large animals, and certain dog breeds are just some of the things that can increase insurance costs. If any items are no longer used, consider getting rid of them.
Review your homeowners policy every year to be sure you’re covered for any upgrades and additions made to your home. At the same time, it also makes sense to reduce or get rid of additional coverages for valuable belongings like expensive jewelry, artwork, and electronics if they are no longer in your possession.
In addition, when considering your home’s value, don’t include the land value as this will raise your rate. You want to be sure your insurance needs are met without over paying for insurance that should be lowered or canceled.
Insurance companies usually offer discounts that you may not be aware exists. So, ask your agent or insurer, and do your research to find out what discounts your current insurer (and other companies) may provide.
Keep in mind that not all insurers provide the same discounts. And since discounts can vary from one insurer to the next, you can benefit from starting your own list of what rate reductions may apply to you. Here are some discounts to check on:
Your age – Older homeowners (55 years old and up) typically spend more time at home and as a result discourage any would-be burglars. Retired individuals also tend to have more time to maintain their home and stifle further damage by spotting dangers before getting out of control while at home.
Nonsmoker – Nonsmokers pose less of a risk due to higher potential fire risks than their smoking counterparts.
New homebuyers – If you’re buying your first home, ask your insurance company about any available discounts that might apply to you. As you decide to buy your first home, consider where its located, its age, if it will need updates and repairs, and needed installation of safety and security devices. You can also learn the history of your home’s insurance claims by requesting a Consumer Disclosure Report.
If your home is being built, it’s easier to install things like sprinklers, water sensors and shut offs, central alarm systems, etc. Consult your agent or insurance company before making any purchases.
Paperless billing – If you choose to receive emails instead of snail mail you may save on your insurance costs.
Automated payments – Some insurance companies may provide a discount if you choose to sign up for automatic payments. For example, it is easy to put a credit card on file, and have it billed automatically.
Be claim-free – If you haven’t filed a claim over several years, you may get a discount. Someone who has a habit of filing claims frequently is considered a higher risk since they may file again.
Security alarm/devices – Check if your installed security devices like alarms with lithium battery backup, doorbell cameras, deadbolts, or other devices apply towards any discount. Being proactive against crime and possible disasters will also protect you and your family against potential danger. If you live in a gated community, ask if you qualify for a reduced rate.
Long-term loyalty – Being loyal to some insurance companies for several years may yield discounts. But don’t just assume you are going to get the best rate. Be sure to compare quotes with other insurers to check for better rates.
Association memberships – You may be eligible for discounts for memberships in certain groups and organizations like homeowners associations. Also, check with your employer and alumni groups who may provide rate discounts.
If you own a home, you need homeowners insurance to cover damages, vandalism, and theft. But depending on where your home is located and its value, your insurance may not be cheap. Be sure that you don’t increase your risks just to lower your costs. Refer to this article to help you find ways to lower your premiums while keeping your home adequately protected.
