Extreme weather event losses are the kind of disaster that the right homeowners insurance can protect you from.
The nonprofit Consumers’ Checkbook regularly does local-market price checks, which show that among people with the same kinds of home insurance coverage, some overpay by $100 or more per month.
Too many of us treat buying coverage for our homes and personal property as a set-it-and-forget-it proposition, signing off on our annual renewals with minimal scrutiny. That’s not surprising given the complexity of typical policies and the difficulty of comparing similar policies from different insurers.
“It can be very hard to shop,” says Fabio Faschi, property and casualty team lead at online insurance broker Policygenius. “With auto insurance, the consumer can say, ‘I want this much coverage.’ But home insurance is driven by the carrier’s determination of what it is willing to replace the property at, often packaged with its own specialized coverage offers.”
Understanding Your Current Home Insurance Coverage
Before making changes to your home insurance, it’s important to have a clear picture of your current policy. This includes knowing what’s covered, your rebuilding costs, and how your personal factors affect your rates. Let’s examine two key areas.
Analyzing Your Rebuilding Costs
Your home insurance policy typically covers the cost of rebuilding your home if catastrophic damage occurs. However, many policies’ “inflation guard” features can lead to overinsurance over time. Here’s what you need to know:
- Check your policy’s dwelling coverage amount against current local rebuilding costs.
- Use online calculators like DwellingCost.com or BlueHammer to estimate rebuilding expenses.
- Consult local home builders or insurance agents for accurate regional cost assessments.
You may be paying too much if your coverage exceeds actual rebuilding costs. Conversely, if construction prices have risen significantly, you might be underinsured. Adjusting your coverage to match current rebuilding costs can help optimize your premiums.
Evaluating Your “Insurance Score”
Your insurance score, which often includes your credit score, can significantly impact your home insurance rates. To potentially lower your costs:
- Ask your insurer if they use credit scores in their pricing.
- Check your credit report for errors and work on improving your score if needed.
- Consider limiting small claims, as a history of frequent claims can increase your premiums.
Sites like Credit Karma can show how your credit score could be improved. Either way, consider holding back on small homeowner’s claims that will ultimately cost you more in premiums.
Shop Around for Competitive Home Insurance Rates
Loyalty doesn’t always pay. While it can be difficult to make direct comparisons, working with an insurance broker and putting in some effort on your own can make you smarter about what’s actually covered (flooding is usually not), and better prepare you to identify a deal — you can sometimes save, for instance, by buying additional or extended replacement cost coverage that increases the insurance at a lower overall cost.
Chubb is a standout in stretching replacement cost, and is particularly proud of its expertise in insuring older homes and unique structures.
Try streamlined online-shopping tools such as Policygenius to help standardize offers, and ask a new insurance agent or two for their best deals (agents may be independent or may work for a specific insurance company).
Comparing Quotes From Multiple Insurers
One of the most effective ways to lower your home insurance costs is to compare offers from different providers. Don’t assume your current insurer always offers the best deal.
To guarantee you’re getting the best value:
- Obtain quotes from at least three different insurance companies.
- Compare coverage limits, deductibles, and additional features alongside premiums.
- Look for insurers specializing in unique home types, if applicable (e.g., older homes).
“Carrier appetite can change over time for what they’re more or less comfortable insuring, so it’s always worth comparing what’s available,” Faschi says. State Farm, Allstate, Farmers, Liberty Mutual, USAA, Travelers, Nationwide, Hartford, and MetLife are among the largest carriers, and can be contacted directly—no need to wait for your renewal.
Increase Your Home Insurance Deductible
Raising your deductible—the amount you pay out of pocket before insurance kicks in—can significantly lower your premiums. However, weighing the potential savings against your ability to cover higher out-of-pocket costs is important.
Calculating Potential Savings
To determine if a higher deductible makes sense for you:
- Request quotes for policies with different deductible amounts.
- Compare the annual premium savings to the increased out-of-pocket risk.
- Consider how often you typically file claims.
For example, increasing your deductible from $1,000 to $5,000 could save you $500 or more on annual premiums.
Determining Your Risk Tolerance
When deciding on a higher deductible:
- Assess your emergency savings and ability to cover a larger deductible if needed.
- Consider the likelihood of needing to file a claim based on your home’s condition and location.
- Weigh the peace of mind of lower premiums against the potential financial strain of a higher deductible.
It’s wise to save home insurance for significant losses rather than minor repairs. A higher deductible can discourage small claims that might increase your premiums over time.
Take Advantage of Discounts and Credits
Insurance companies offer various discounts that can add up to substantial savings. Being proactive about qualifying for these discounts can help lower your costs without sacrificing coverage.
Home Security Upgrades
Improving your home’s security can lead to insurance savings:
- Install deadbolts, smoke detectors, and burglar alarms.
- Consider advanced systems like water shutoff valves to prevent water damage.
- Ask your insurer about specific security measures that qualify for discounts.
There are often credits for reducing risk, from adding security measures and renovations to simply not having submitted claims. Mike Gulla, director of underwriting for tech-savvy Hippo Insurance, says their Smart Home Sensor Kit can typically save customers 5 to 11 percent.
Ask, too, if any policy has optional coverages that have an outsize effect on the overall cost: You could be paying for extra protection against identity theft or personal injury that you don’t need.
Bundling Insurance Policies
Combining multiple insurance policies with one provider often results in discounts. For instance, bundling home and auto insurance can lead to potential savings of 10-20 percent. Additionally, asking about other policies like life or umbrella insurance could further increase your bundle discount. It’s important to compare bundled rates across insurers to ensure you’re getting the best overall deal.
Loyalty and Claims-Free Discounts
Many insurers reward long-term customers and those who don’t file claims. If you’ve been with your insurer for several years, inquire about loyalty discounts. Also, ask about claims-free discounts if you haven’t filed a claim in recent years. When considering these options, it’s important to weigh whether these discounts outweigh potential savings from switching insurers.
Adjust Your Home Insurance Coverage
Fine-tuning your coverage can help eliminate unnecessary costs while protecting you adequately. Review your policy regularly to make sure it aligns with your current needs.
Reassessing Personal Property Coverage
Your personal property coverage protects your belongings inside the home, making it important to keep an updated home inventory to accurately value your possessions. If you own high-value items like jewelry or art, consider whether you need additional coverage. Adjust your coverage limits if you’ve downsized or acquired fewer expensive items to ensure you’re adequately protected without overpaying.
Reviewing Additional Living Expenses Coverage
This coverage pays for temporary housing if your home becomes uninhabitable, so evaluating whether your current limit is sufficient based on local rental costs is important. You might consider reducing this coverage if you have alternative living arrangements available. Ask about options to adjust this coverage separately from your main policy limits to better fit your needs.
Specialized Insurance Considerations for Rental Properties
You’ll need specialized insurance coverage if you rent out your long-term or short-term property. Understanding these needs can help you balance protection and costs effectively.
Short-Term Rental Insurance Needs
For those using platforms like Airbnb or HomeAway:
- Check if your current policy has a “business activity exclusion” that could void coverage during rentals.
- Look for policies with “home sharing endorsements” or specific short-term rental coverage.
- Verify you have at least $1 million in commercial liability coverage for rental activities.
“You may be opening yourself up to gaps in coverage and denial of claims,” warns Nick Massey of Proper Insurance. The company started as a carrier for bed-and-breakfasts in the 1980s and now specializes in policies for short-term rental hosts.
Get clear if your homeowners policy includes a “business activity exclusion” that may deny claims merely because there are renters on-site. Also look for a “home sharing endorsement” that will actually provide some coverage for renting out.
Better yet, ask about policies that explicitly include at least $1 million in “commercial liability” coverage.
Check the coverage, too, against any local laws that may have their own insurance requirements separate from what’s included by rental sites.
One trick for reducing your insurance costs: Consider dialing down the “loss of revenue” protection in commercial coverage; you’ll be less insured against lost rental income — say you miss three weeks of summer rents because a lightning strike knocks out the house’s water pump — but as with higher deductibles, you may save in the long run if you can afford to shoulder more risk.
Our Conclusion
Lowering your home insurance costs requires a proactive approach and regular policy reviews. By understanding your coverage needs, shopping around, increasing your deductible, taking advantage of discounts, and adjusting your coverage, you can significantly reduce your premiums while maintaining adequate protection for your home.
Remember that the cheapest option isn’t always the best. Strive for a balance between affordable premiums and comprehensive coverage that gives you peace of mind. Regularly reassess your insurance needs as your home and circumstances change to make sure you’re always getting the best value for your insurance dollar.