Homeowners insurance isn't a luxury, it's a necessity. In fact, most mortgage companies won't make a loan or finance a residential real estate transaction unless the buyer provides proof of coverage for the full or fair value of the property (most of the time this is the purchase price). In this article, we'll show you some simple actions you can take to make sure your homeowners insurance is sufficient for your needs.
Homeowners insurance can be very expensive. Those that live in high-risk areas such as close to major waterways, known earthquake fault lines or other high claims areas will pay the most for coverage. In Northwest Indiana, we are more at risk for hail storms and tornadoes are more likely in Central and Southern Indiana. Those in higher risk areas are often forced to pay annual premiums in the thousands of dollars. But even homeowners in relatively sedate neighborhoods (with property values around the national average of $210,000) could pay between $500 and $1,000 a year for a basic policy.
The good news is that although you can't (and shouldn't) avoid purchasing homeowners insurance, there are ways to minimize the cost.
Here are six ways to make sure you get the right coverage and adequate compensation for your home:
1) Maintain a Security System and Smoke Alarms: A burglar alarm that is monitored by a central station, or that is tied directly to a local police station, will help lower your annual premiums, perhaps by 5% or more. In order to obtain the discount, you must typically provide proof of central monitoring in the form of a bill or a contract to the insurance company.
Smoke alarms are another biggie. While standard in most modern houses, installing them in older homes can save the homeowner 10% or more in annual premiums. Of course, even more importantly, in case of fire, they could save your life!
2) Raise Your Deductible: Like health insurance or car insurance, the higher the deductible you choose, the lower the annual premiums. However, the problem with selecting a high deductible is that smaller claims such as broken windows or damaged drywall from a leaky pipe, which typically will cost only a few hundred dollars to fix, will most likely be paid out of pocket.
3) Look for Multiple Policy Discounts: Many insurance companies give a discount of 10% or more to their customers that maintain other insurance policy under the same roof (such as auto, motorcycle or RV). Consider obtaining a quote for other types of insurance from the same company that provides your homeowners insurance. You may end up saving on two annual policy premiums.
4) Plan Ahead for Construction: If you plan to build an addition to your home, you should consider the materials that will be used. Typically, wood-framed structures (because they are highly flammable) will cost more to insure. Conversely, cement- or steel-framed structures will cost less because it is less likely to succumb to fire or adverse weather conditions.
Another thing that most you want to consider is the insurance costs associated with building a swimming pool. In fact, items such as pools and/or other potentially injurious devices (like trampolines) can drive annual homeowners insurance costs up by 10% or more. This may seem like a small price to pay given the joy these items bring, but it is still something that should be considered prior to purchase or construction.
5) Pay Off Your Mortgage: Obviously this is easier said than done, but homeowners that pay off their mortgage debts will most likely see their premiums drop. Why? The simple reason is that the insurance company figures that if you own the home outright, you'll take better care of it.
6) Make Regular Policy Reviews and Comparisons: As a homeowner, you should, review your existing policy every year and make note of any changes that might have occurred that could lower your premiums.
For example, perhaps you have disassembled the trampoline, paid off the mortgage, installed a burglar alarm or installed a sophisticated sprinkler system inside your home. If this is the case, simply notifying your insurance agent of the change(s) and providing proofs in the form of pictures and/or receipts could significantly lower your insurance premiums.
Look for changes in the neighborhood that could reduce rates as well. For example, the installation of a fire hydrant within 100 feet of your home, or the erection of a fire substation within close proximity to your property may lower your annual premiums.
Wrapping It All Up
To avoid any discrepancies and any delays in receiving your insurance money for your home, make sure you document everything. Photograph and videotape the entire contents of your home and the home itself. Then store these photos and videotapes in a fireproof box. In addition, consider storing a copy of the photos at a relative's house, and/or in a safety deposit box. Doing this will help you compile an inventory of your possessions (which is what the insurance company will demand) after a disaster. It will also, by extension, dramatically shorten the length of the claims process if a disaster does occur.
Homeowners insurance is a necessity. There are ways to save money, but there are also some features that homeowners shouldn't skimp on. Make sure you know the difference.
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