The other day I was taking my own advice and trying to lower the costs of my homeowners insurance. I’m a big fan of trying to get the best deals possible, and so every now and then I see if there is anything I can do to get a lower rate. Since the insurance market is pretty competitive, you never know if there is a better deal out there unless you call. Here are some things I learned during this call, that maybe you can apply to saving yourself some money on homeowners insurance.
Your Home’s Features
The biggest factor that drives your homeowners insurance premium is the cost of rebuilding your home should something happen. And it is important to note that this is NOT the value of your home. I heard an interesting fact from a neighbor who had their house burn down three years ago, “Even though the house was only valued at about $450,000, it cost us close to $750,000 to rebuild”. The reason? There are a lot more costs involved that you may expect.
You see, your insurance company will use a software program like Cordell Estimator to get a figure for the cost of rebuilding your home based on labor and materials. What many homeowners forget is that this estimated rebuild cost also includes:
- Debris removal for your old house
- Getting new plans and permits created (unless you happen to have your exact plans still)
- Building costs and materials
- Any money you get to stay in a hotel
That is why it is so important to be honest about what your home’s amenities include. For example, I consider my kitchen to be a “custom kitchen”. However, the insurance company considers a custom kitchen to be a kitchen that can have none of the materials or appliances purchased for a major retailer, like Home Depot or Lowes. I asked about granite counter tops, and she told me that you can get that in a regular kitchen from home depot!
Why does this make a difference? The cost of a custom kitchen adds about $80,000 more to the rebuild cost than a regular kitchen, which will add about $300 per year to my premium. In the end, I decided that a standard kitchen would probably cover our needs just fine.
Things You Can Choose
There are other things that you can choose as well that will determine your premium. Two features come to mind:
- Your deductible
- The amount of personal property coverage you choose
For your deductible, you typically have to have a value less than 2% of the value of your home, for your mortgage company to be happy. However, for many properties, that can be a high deductible. As such, you should usually choose the deductible that is as high as you feel comfortable with. The higher the deductible, the lower the premium payments will be.
As for personal property coverage, you should choose an amount that truly reflects the value of your stuff. Many insurance companies use a standard percentage of the home value, such as 40%, which may or may not be representative of what you really own. Since we are just starting out in our home, we don’t have much stuff, and as such, chose a lower personal property coverage to save money now. If we amass a bunch of stuff in the future, I can always change it later.
Have you shopped around for insurance lately? Did you learn anything interesting?