Just Beginning Your Search? Acquiring Insurance

As you begin your search for the right insurance, you'll need to understand your options and policy choices. Homeowners and renters policies are essentially the same, except that renters policies do not cover damage to the dwelling.

Here are some basic points you will want to consider:

How Much Insurance Should You Have?

It's generally safe to assume that the more insurance you have, the more protected you are if you have to file a claim. At the same time, there is no point in over-insuring and paying too much in annual premiums. For instance, you should only insure your home for the dwelling's estimated replacement cost, excluding the value of the land it sits on.

Should You Choose Replacement-Cost or Actual Cash Value?

When buying insurance coverage, you must choose whether to insure your property and belongings for actual cash value or replacement cost.

Replacement cost will cover the cost of rebuilding, repairing or replacing your home and personal belongings up to the covered amount of your policy. Actual cash value premiums cost less but only provide reimbursement based on the present value of the destroyed item.

Carefully weigh the value of replacement-cost coverage even if it costs a little more. The out-of-pocket difference in the event of a loss can be great. If your home is insured for less than 80% of its replacement cost, you may be liable for a co-payment penalty.

An extended replacement-cost policy will provide an additional 20% in coverage above standard policy limits. Guaranteed replacement-cost coverage can protect you regardless of the future cost to repair or rebuild your home. A home's age can limit these types of policies. Older homes may require a modified replacement-cost policy, which will replace the features of older homes, such as plaster walls, with drywall and other typical modern building materials.

What Additional Types of Coverage Should You Consider?

Inflation guard coverage will increase your coverage limits for replacement cost every year, and so keep your insurance up-to-date. If you don't have this type of endorsement, you should consider your maximum limits each year and discuss with your agent whether they should be increased.

Replacement-cost and actual-cost options are also available for personal property. An older refrigerator, stove or television may have little value from an insurer's point of view. However, your cost to replace those items at today's prices could be overwhelming.

There may also be standard personal property limits for specialty items such as jewelry, antiques, electronics and firearms, among others. You can purchase a separate Scheduled Personal Property Endorsement or floater to fully protect these types of valuables. These polices often also provide coverage in the event of loss in addition to theft, damage and destruction.

Older homes occasionally need improvements to bring the property up to current building code standards. The cost of these upgrades may not be covered in your standard policy. If your home is destroyed, even guaranteed replacement coverage will typically exclude the cost of rebuilding to meet new building codes. You may want to consider purchasing a separate Law and Ordinance endorsement to protect you in these cases.

What Factors Affect the Cost of Premiums?

When it comes to setting premium costs, rates of loss, and location are among the considerations but they are not the only factors. Neighborhood characteristics "such as crime rates” can also influence general premium levels.

If you rent your home or apartment, the insurance company will not consider factors like size and building costs, but it will look at other risks that may be associated with apartment or condominium living.

There are other individual property-related items and policy options that also play a large role in setting premium levels. These are:

Amount of coverage It should be no surprise that the amount of coverage is a large component of premium pricing. Additional endorsements and supplemental types of coverage can also contribute significantly to premium costs.

Deductibles The deductible is the amount of out-of-pocket cash you will pay for each claim before the insurance company begins to pay out benefits. Most insurers will tie annual premium costs to the amount of deductible you are willing to pay; if you choose a higher deductible, like $500 instead of $250, your annual premium will be lower.

Type of building materials and construction Since wood-frame homes often cost more to insure than brick homes due to the increased chance of fire, your annual premium will be higher.

Age of house New homes can qualify for discounts in some states and older homes may have limited or no coverage available due to extensive risk or higher replacement costs.

Caution: You May Get What You Pay For Remember, price should not be the only determining factor. While you don't want to overpay for insurance, a company that cuts premium prices too much to attract new business may not have the capacity to perform when you really need it.

Local fire protection How close is the nearest fire hydrant and the local fire station? How fast emergency responders can arrive can be the difference between a little damage and total destruction. Rural properties present greater risk since fire and rescue teams may be located many miles away.

Discounts You can sometimes get a multiple policy discount from insurers that cover your home, car and perhaps other insurance needs.

Credit history More insurance companies are looking at credit reports as part of the application process. Many are now including credit score or credit history items in their consideration process and pricing premiums, or refusing to offer coverage, based on credit record findings.

Strategies for Minimizing Risk and Reducing Premiums

You may have no control over market conditions that contribute to premiums, however there are other items you do have some control over that can affect premium amounts. You may be able to save anywhere from 5% to 25% or more in annual insurance costs just by implementing some of these simple tips:

Shop Around

Like most professional services, it pays to shop and compare providers. You must first determine the types of coverage and policy endorsements you need. Then call insurance company agents and brokers or check the Internet for comparison quotes. Prices can vary greatly, so be sure to get several comparisons.

Your state regulator can provide you with a complete list of licensed insurers in your state and may also have comparison pricing information.

Check the background of insurance companies you are unfamiliar with. They should be financially stable and have high marks from independent ratings agencies. Regulators often have information concerning complaints or rulings against certain providers which will help you steer clear of unethical business practices or insurance.

Increase Your Deductible Amount

Most experts recommend a minimum $500 deductible. If you can afford to raise the deductible to $1,000, you could create significant savings in annual premium costs. Of course you will have to come up with $1,000 instead of $500 if you experience a major loss, but you might easily make the difference up in a few years through your reduced annual premiums. Wait! Before you raise your deductible, consider if you would have the extra funds on hand if you needed them tomorrow. Remember that the insurance company may also have separate or additional deductible amounts for damage caused by major disasters such as wind and hail storms.

Check Into Discounts If your company insures homes and automobiles, find out if they offer premium discounts if you insure everything with them under an umbrella policy. You might be able to save in annual premium costs on each type of coverage by combining policies with the same provider.

Improve Security Systems

Smoke detectors, sprinkler systems, deadbolts, burglar alarms and security systems can all help reduce premiums depending on their features. However, consider the cost of installing expensive systems versus the premium discount before you decide to install one just for insurance savings. You should also be certain that the device you’ve chosen will qualify for a premium discount.

Make Your Home More Resistant to Disasters

You might be able to save on annual premiums by adding items that make your home more secure from disasters, such as storm shutters, shatter-resistant glass and reinforced roofing materials. You can also modernize internal systems to reduce the risk of damage from fire and water.

Maintain a Good Credit Record

Since more insurers are beginning to include your credit information in their application and pricing, try to maintain as good a credit record as possible to ensure the lowest possible rates — or to be sure you can secure coverage from your favorite provider.

Stay with the Same Provider

Many companies are beginning to recognize the value of long-term customers and claim-free records. Some insurers will reduce premiums based on loyalty. You should still occasionally compare your company’s offerings to other providers in the market so you can be sure you are receiving competitive rates.

Alert: Reducing the Cost of Mobile or Manufactured Home Insurance. As a mobile or manufactured home owner, there are things you may be able to do to keep the costs down, such as insulating and winterizing, securing the home to the ground with approved tie-downs and ground anchors, and installing security devices. The cost of mobile home insurance also depends on the age and type of mobile home you own. Doublewide and multiple-segment homes usually cost less to insure.

Review Your Primary and Supplemental Coverage

As mentioned earlier, you should periodically review your insurance coverage to make sure it is keeping up with inflation and replacement costs. Also review things like supplemental endorsements and policies for items that are no longer worth their insured value or have been sold, donated, etc.

Seek Out Group or Other Discounts

Ask about specific discounts or special offers that may apply to you or your home. These might include such things as senior discounts for those over age 55 or special incentives for modernizing home electrical, plumbing, heating and cooling systems.

You may be eligible for a discount if you have a group insurance plan at work. Check with your employer's benefits department to see if your insurer offers this type of savings.

Choosing Homeowners Insurance for Mobile or Manufactured Homes

Mobile homeowners have often had to pay more for insurance coverage than other homeowners for the same amount of coverage. This is because mobile homes are at a higher risk of damage from wind. You should be prepared to shop around to find a policy that best suits your needs.

Major Pit Stop Ahead!

You've just rounded the bend and the road is wide open so you can pick up speed. However, just ahead there is a gap in the road, and you'll need to make a pit stop at the financial section just in case you need a loan to bridge the gap. There are a number of loan product options ahead that may come in handy farther down the road to housing recovery. So, let the top down as you breeze along the Road to Housing Recovery.