Home Ownership

Get the Best Homeowners Insurance, Look Past Premiums and Deductibles – Here’s Why.

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    • FNBO

      May 05 2021

Get the Best Homeowners Insurance, Look Past Premiums and Deductibles – Here’s Why.

Based on 2020 data, the average homeowners insurance premium to cover a $250,000 dwelling was $1,477. Considering that the same coverage is nearly double that in some areas of the country, it’s natural to be cost conscious when seeking an insurance policy.

To get the best homeowners insurance and the best premium price, many people shop around and review coverage from different carriers. Before you sign on the dotted line, however, it’s important to understand the coverage you are getting. When it comes to insuring your home, the lowest cost doesn’t always equal the best coverage. 

First, Know What Your Homeowners Insurance Policy Covers

Your homeowners coverage is designed to help you restore your property when you suffer a loss due to a covered event. Unfortunately, not everyone understands what constitutes a covered event.

According to a consumer survey conducted by Policygenius, more than half of consumers believed that a homeowners insurance policy would protect their home from damage caused by flooding. Eighty percent thought their policy would kick in to cover repairs associated with earthquake destruction. Unfortunately, neither of these natural disasters is considered a covered event by traditional insurers and requires a separate policy or rider. 

Coverage limits are another area that can be confusing when comparing policies. This is the total amount your insurer will pay in the event of a claim, and these reimbursement caps are in place for each individual coverage supplied by your policy. This includes: 

  • Other Structures Coverage:

    This type of coverage applies additional structures on your property, such as a fence, shed or detached garage.

  • Liability Coverage:

    Perhaps one of the most overlooked elements of your homeowners policy, this critical coverage comes into play when someone is inured on your property or if you cause damage to another’s property.

  • Medical Payments:

    Medical payments coverage is meant to cover the cost of treatment for minor injuries to guests that occur on your property or are inflicted by you or a pet off your property.

  • Personal Property Coverage:

    This part of your policy covers your personal belongings and pays to replace them if they are lost, stolen or damaged.

  • Additional Living Expenses:

    If your home is damaged, you will need a place to stay while repairs are taking place. This coverage pays additional money for living if you are unable to stay in your home.

While most of the coverages listed above are standard inclusions on a homeowners policy, coverage amounts can vary from state to state and across policy premiums. For example, limits for medical payments typically range from $1,000 to $5,000. A policy with a low premium may cap coverage at the lower end of the scale, after which you will have to pay out of pocket. It’s another factor you will want to consider when comparing policies and premiums.

Insurance Policy Reimbursements Impact Premiums

In addition to coverage limits, your premium can be impacted by the type of reimbursement the policy offers. Often, a policy with a lower premium is based on the actual cash value of your property at the time a claim is submitted. 

With this type of policy, you are benefitting from lower monthly or annual payments, but if you should have a claim, the insurance reimbursement may not be enough to cover the cost to replace your home. 

That’s because your insurer will account for depreciation of the materials used in construction when settling your claim. For example, if you suffer hail damage to a 25-year-old roof, your settlement will not cover the full replacement cost, since the insurer will make deductions based on age and condition.

The same holds true for replacing valuables within the home. According to Travelers Insurance, an item such as a laptop, can lose 20 percent of its value to depreciation for each year that you own it, meaning that a $1,000 laptop damaged after two years of use will only net a reimbursement of $600. 

On the other hand, replacement cost coverage will reimburse you to rebuild your home or replace damaged items at current costs. This type of policy demands higher premiums but will protect you against the depreciation of your home and valuables. 

When comparing policies, it’s important to understand which type of coverage is being quoted and to weigh any difference in cost against the protection being offered.

Are There Ways to Reduce Insurance Policy Costs without Sacrificing Coverage?

Once you understand how to evaluate homeowners insurance, you can start looking for ways to save. For instance, it pays to bundle your insurance policies. By combining coverage, such as homeowners and auto, with a single carrier, consumers can save as much as 30 percent over separately priced premiums. 

It’s also possible to take advantage of special discounts. Installing an alarm system, not smoking in the house, and adding deadbolt locks can earn you up to a 5 percent discount, according to Mark Friedlander, spokesperson for the Insurance Information Institute. Certain professionals, such as teachers and firefighters, or members of special groups can also earn discounted premiums.

Another way to save is to avoid submitting claims. Each claim you make has the potential to increase your premium. As a result, people may choose to pay for minor repairs or losses out of pocket, preferring to take a one-time hit than to feel the pinch every time they pay their homeowners premium. 

The important thing to remember is that all coverage is not created equally, so you’ll want to weigh any cost savings against the factors listed above to ensure you’re adequately covering your home, property and yourself.

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The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.