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There are three ways you can save money on your home insurance policy: comparing quotes to find the best, least-expensive insurance company in your area, selecting only the coverage types and deductibles you need, or qualifying for discounts offered by insurance companies to policyholders. Following these steps could save you as much as 20% to 40% on your homeowners insurance premiums. Here are more details about saving on your policy and the discounts you may qualify for.
How to qualify for home insurance discounts
Some homeowners insurance discounts are applied when you first buy your policy. For example, if your house is relatively new, it may be less in need of certain repairs—such as a new roof—compared to older homes. Insurance companies consider that reduced risk when determining your rates, so you may receive some policy discounts.
Other discounts may apply when you upgrade your home or reach certain milestones, such as paying off your mortgage. However, it's important to understand your home insurance company's limits on discounts. Homeowners insurance companies calculate their premiums and discounts differently, and some insurers limit the amount of discounts a policyholder can receive.
For example, AIG limits their "protection credit" to 15% of the total policy premium. If you've reached that limit, you may be unable to receive additional discounts. The following are some common discounts on your homeowners insurance policy.
Bundle your home and auto insurance policies
Most insurance companies offer a discount to policyholders who bundle their home and auto insurance policies.
Discount to Homeowners Premium for Bundling Home + Auto
|Amica||up to 15%|
|Nationwide||up to 20%|
|State Farm||up to 22%|
|USAA||up to 9%|
|Progressive||up to 10%|
|Farmers||up to 10%|
|Travelers||up to 13%|
While most people bundle home and auto insurance policies, you can also bundle other types of insurance policies.
Ask about a loyalty discount
Home insurance companies regularly reward long-term customers with loyalty discounts. As a policyholder is in good standing and remains claim free, most insurers will reduce the cost of their premiums each year. The longer you remain claim free, the greater your discount, to a point.
If you notice that your homeowners insurance premiums have gradually increased, that does not mean you aren't receiving the discount. Your policy's rates may increase over time due to the age of your home and the increasing likelihood of a claim. However, your loyalty discount may still be factored into those rates. If you're not sure whether the discount is being applied, ask your insurance agent.
Ask if you qualify for an impact-resistant roof discount
Hail and other falling objects can cause a significant amount of damage to your roof, which would be costly for your insurance company to repair. Because of this, insurance companies often offer discounts to policyholders whose houses are built with hail-resistant roofs.
However, not all impact-resistant materials receive the same discount. Materials must be tested and assigned a rating ranging from class 1 through class 4, the latter receiving the highest discount. If your house has impact-resistant roof shingles, or if the roof is composed of metal, ask your insurance agent if you qualify for a discount.
Improve your credit score
In most states, homeowners insurance companies are allowed to consider your credit score when determining your policy's rates. Among other criteria, your credit score is affected by the amount and type of debt you carry and the timeliness of your payments. Revolving debt (such as credit card debt) and high credit utilization (meaning, using the majority of credit available to you) adversely affects your score.
Mortgage debt, on the other hand, does not significantly diminish your score—as long as you submit your payments on time. It's difficult to improve your credit score in the short term, but paying off your revolving debt and paying other loans on time can improve your credit score, which may eventually lead to better home insurance rates.
Install smart smoke alarms
Most people forget to check their smoke alarms on a regular basis. That's why smart smoke alarm systems such as the Nest Protect will connect with your insurance company via wi-fi to inform them that the system is working. Because of this, insurance companies may offer you a discount of up to 5% off your annual premiums if you install a smart smoke alarm system.
Assuming you have a $1,000 annual policy, your smart smoke alarm could pay for itself in as little as three years, while enhancing the fire protection for your home. You may receive a discount if you add fire extinguishers to your home, as well.
Notify your insurance company if you install a fire sprinkler system
Installing a fire sprinkler system will cost more than the home insurance discounts you'd receive, at least for six decades after the installation. According to the National Fire Protection Association, fire sprinkler system installation costs an average of $1.35 per square foot covered, or $6,026 per system installed. If you're retrofitting an already-built home with a sprinkler system, your costs may be higher.
However, sprinkler systems can prevent the loss of life and property, so you may choose to have one installed anyway. Alternatively, you may have just purchased a home with a system already installed. If you have a fire sprinkler system in your home, inform your insurance agent of the system and ask for a discount. You may see savings of up to 10% on your annual policy.
For those unfamiliar with residential fire sprinkler systems, a common fear is that once the system is initiated, all of the sprinklers in the house will activate, drenching the home and all of the personal property inside. This is not the case. Sprinkler systems activate individually when they detect temperatures between 135 and 165 degrees Fahrenheit.
The amount of weight different insurers give to smoking-related risk varies. If you or someone in your house smokes, your insurance company may consider your home at a higher risk of fire. Not only could unattended cigarettes pose a risk, but children are likely to have increased access to matches when there is a smoker in the home.
According to the National Fire Protection Association (NFPA), fire departments responded to approximately 90,000 smoking-related fires in the U.S. in 2011. These fires caused an estimated 540 civilian deaths, 1,640 injuries and $621 million in property damage. If you smoke, your home insurance premiums could be 1% to 15% higher than those of nonsmokers.
Additionally, quitting smoking can reduce your health and life insurance premiums, and your weekly spending amounts as well.
Tell Your Insurance Company if You Install a Central Alarm System
The monthly service fees of a central alarm system—the kind that alert security or emergency agencies during a fire or burglary—are higher than any discount you'd receive from your insurance company. However, you might choose to install an alarm system anyway, to improve the security of your home. If you do, ask your insurance company for a discount. You may receive as much as 10% off of your annual home insurance premium.
Homes with deadbolt locks or local burglar alarm systems—the kind that alert only those in the immediate area—may or may not qualify for a home insurance discount. It's always smart to ask your agent. Sometimes they can use their discretion to offer discounts.
Tell Your Insurance Company if You Install a Lightning Protection System
A bolt of lightning can deliver as much as 30 million volts of electricity, which could set fire to a home or destroy the electronics and appliances inside. There were 109,049 lightning claims in the U.S. in 2016 that were paid at an average of $7,571.90 per claim, according to the Insurance Information Institute. Homes with lightning protection systems do get a discount on insurance policies, but it could take almost the rest of your life for the savings to make up for the cost of the installation.
Tell Your Insurance Company if You are Retired
Most burglaries and significant hazards, such as fires, take place when nobody is home to spot the danger. As such, working-age families pose more risk to insurance companies than retired homeowners, who are often at home. If you have recently retired, tell your home insurance agent and you'll likely receive a discount.
Choosing the right coverage and deductible
One of the easiest ways you can lower your monthly homeowners insurance premiums is by choosing a higher deductible. Your deductible is the amount of money you're required to pay for a repair before your insurance policy kicks in. If your home is in good condition and unlikely to face risks in the coming year, this strategy might be right for you.
However, if your home is older or in a high-risk area, a high deductible may end up costing you more, in the event you have to file a claim. If you do elect a high deductible, make sure it isn't so high that it would cause financial hardship if you do need to file a claim. Regardless of the size of your deductible, you should consider that potential cost when determining how much money you keep in your savings account.
What should my coverage limits be?
Your homeowners insurance policy will be subject to one of three policy limits, derived from the total value of your home.
- Actual Cash Value (ACV): The ACV of your house is its market value, minus depreciation. For example, if your roof cost $20,000 to install 20 years ago, and it is destroyed by a hurricane, your insurance policy would not pay you the full $20,000 to replace it. Twenty years of wear and tear have diminished the value of your roof, so the amount you'd be reimbursed would be lower than the cost to replace your roof today. You’d pay the difference out of pocket. However, a policy with an ACV limit is your cheapest option, if a lower monthly premium is your priority.
- Replacement Cost Value (RCV): Your house's RCV is the amount it would cost to rebuild your same home today. While more expensive than a policy with an ACV limit, insuring your home's RCV could prevent you from having to pay a significant amount of money if your home is totally destroyed by a covered peril, such as a fire.
- Guaranteed Replacement Cost (GRC)/Extended Replacement Cost (ERC): The GRC/ERC is the most expensive limit you can choose for your homeowners insurance policy. However, it guarantees that your insurance company will pay a specified percentage above your home's RCV if a localized hazard, such as a hurricane, temporarily drives up the cost of labor and materials in your region.
If your current policy is subject to a GRC/ERC limit, and you're interested in lowering your home insurance premiums, you might want to lower your policy limit to your home's RCV. However, homeowners in areas prone to regional disasters may prefer to pay for the extra coverage.
We recommend all homeowners maintain at least RCV coverage, if they can afford it.
When is filing a claim the right move?
When you file a claim with your home insurance company, you will likely see an increase in your homeowners insurance policy premiums the next time you renew your policy. This is especially true of claims for damage for which you are to blame. Those who file multiple claims within a few years will see an even higher increase in their premiums. Because of this, some repairs may be worth paying for with your own money without filing a claim.
Homeowners insurance policies are meant to act as a safety net for disasters, not to cover the routine maintenance required by your home as it ages. Always consider deductibles and increased premiums when deciding whether filing a claim makes sense.
How to find an affordable home insurer
Finally, one of the most effective ways to save on your premium is by shopping around and comparing quotes from the best insurance companies in your area. Insurance is a competitive industry, and insurers often offer discounts to policyholders looking for a new insurance company.
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You can easily receive insurance quotes online by providing insurers with some basic information about you and your home. We recommend you gather quotes from at least three insurance companies to find your best rates and the coverage that is right for you.