I’m not gonna lie, I may have fallen asleep a time or two while researching this article. Let’s face it, homeowners insurance isn’t the most exciting topic. But arming yourself with the knowledge is key to getting the right policy and saving money along the way!
1. Your Credit Score Counts
Most of us know that your credit score matters when getting a good rate on your mortgage, but did you know it plays a role in your homeowners insurance premium? Since their models show consumers with good credit are less likely to file claims, insurance companies use the information in your credit report in calculating your insurance score.
So, like we discussed in our article Credit Score Basics, checking your credit score should be the first step you take in the home buying process…for a number of reasons. Having a good score can mean savings on your mortgage and your home insurance premiums.
2. Shop Your Homeowners Insurance
It pays to shop around when it comes to homeowners insurance. You may be surprised to find how much premiums from different companies vary. Consider this simple study done by BankRate.com. In 15 different cities across the US, they gathered quotes from 4 different insurance provides for the same address, keeping the coverage exactly the same. The rates from these companies varied anywhere from 7 to 188%! That means one insurance policy for the same home cost almost double that of another insurer.
Why do prices vary so widely? One possible reason is that each provider has a different algorithm for determining their premiums. They assign different weights to the factors that help determine your rate, such as building costs in your area, local crime rates, natural disasters, etc.
Your mortgage lender will require you to have home owners insurance and may require you to purchase additional insurance, like flood insurance. You should contact at least 3 companies to compare coverage, price and reviews, or you can use an insurance broker to do the leg work for you.
3. Get the Coverage You Need
One of the most important things in understanding homeowners insurance is how much coverage you’ll need. According to the Insurance Information Institute, “Most standard homeowners insurance policies include four essential types of coverage…”
- Coverage for the structure of your home
- Coverage for your personal belongings
- Liability protection
- Additional living expenses if you are temporarily unable to live in your home because of an insured disaster
Coverage is not a place to skimp – insurance companies typically offer protection from potential risks. Having the appropriate policy means you can rebuild or replace in case of a lose. Not sure how much do you need? Here’s an online dwelling coverage calculator to help you get started.
Additional, you should keep an inventory of your personal items so that you can easily provide it to your insurance company should a disaster strike or a burglary occur. Here’s a great tool for tracking all the items in your home that you’ll want covered.
4. Bundle Your Policies
Most insurance companies give a discount to their customers that have multiple policies. By bundling your home and auto (or any other toys you have) you could save anywhere from 10-20% on your annual premiums.
5. Keep Your Home Safer & Save
In addition to having good credit, there are a number of things that can save you money on your homeowners insurance premium. According to Hanover Fire Insurance & Casualty; “Essentially anything that would make your home safer, could save you money including…”
- A home burglary alarm system
- Dead bolt locks
- Fire alarms and sprinklers
- Updated heating systems
- Updated wiring and electrical system for the home
- A home near a fire hydrant or fire department
- A home located near a police department
- Well-structured and maintained stairs, sidewalks, driveways, and entrances (less chance of injury),
6. Evaluate Home Risks That Impact Your Rate
When looking for a home, it’s important to evaluate any risks that come with it…including the ones you may bring with you. Is the home in a flood plain? If so, you’ll need to purchase a separate flood insurance policy. Does the home have a pool or trampoline? Either of these items can increase your premiums.
Do you have a dog? Be aware that not all breeds are treated equally by insurance companies. Also taken into consideration are things like the crime rate in your area. Read more about factors that impact your insurance premium in our article 5 Home Insurance Factors That Impact Your Purchase.
7. Escrow Accounts
If you’re like the majority of homeowners, you’ll escrow your homeowners insurance and property taxes. Each month, part of your mortgage payment goes into an account held by the lender (an escrow account) to pay for your property taxes and insurance when they’re due.
If you’re putting less than 20% down, you’ll be required to escrow your property taxes and homeowners insurance. If you put 20% or more down and choose not to escrow, typically the lender will charge you a higher rate. The reason? Lenders prefer to make these payments on your behalf so they know they’re current, because if you should go into foreclosure, they want to make sure their in first position to collect the funds their owed.
Review Your Policy
Whether you’re purchasing your first home, or you’ve owned your home for years, it’s always a good idea to review your policy to make sure you have adequate coverage and a reasonable annual premium.
We’ve established a relationship with a local insurance broker who can review your existing policy and offer any suggestions that could improve or lower its cost. Contact us today to receive a free consolation, were happy to help!