Homewners insurance discounts are typically automatically applied to your policy when you first buy your policy. As a policyholder, you might already qualify for different types of savings which insurance companies take into account when calculating the base cost of your policy. For example, a discount is applied to every new home because it has a lower risk of a claim being filed than an older one, which then automatically diminishes over time. That's why comparing home insurance quotes, choosing the right deductible and maintaining good credit are the best ways of keeping the cost of your home insurance premium down at its onset. Policyholders should always review their coverage and make sure they are not over or under insured as well.
But there are ways to save on your premiums if you’ve already purchased a policy, from maintaining your relationship with your home insurance company to home improvement projects. Particularly in the case of the home improvement circumstances below, the discounts help policyholders lower the cost of their home insurance premium, but don’t necessarily save them money overall.
Bundle Multiple Policies
Most insurance companies offer a discount on premiums when you purchase more than one policy from them. Often called “bundling,” this is a great way to lower premiums, especially because the discounts are percentage-based rather than dollar amount-based. For example, if a State Farm homeowners insurance policyholder also purchases a private passenger auto insurance policy, the cost of their base homeowners premium is discounted 22%.
Beyond the most common home and auto combination, companies offer discounts for bundling all types of policies. For example, AIG only offers a 5% to policyholders who purchase both a home and auto policy. However, AIG also offers discounts to policyholders who insure any private property, such as a piece of art or a wine collection. Home insurance policyholders with AIG are eligible for discounts of up to 12% if the annual property-specific premium exceeds $12,000. This insurance practice is called scheduling and is offered by many home insurance companies.
Below is a chart that shows discounts offered by companies for purchasing both a home and auto insurance policy from the same carrier. The discount amounts are generally just applied towards the homeowners insurance portion of your premium.
|Insurance Company||Discount to Homeowners Premium for Bundling Home + Auto|
|Kemper Independence Insurance||-20%|
|Oregon Mutual Insurance||-15%|
|Aegis Security Insurance||-12%|
|Eagle West Insurance Company||-10%|
|Universal North America||-5%|
Remain Loyal to Your Home Insurance Company
Insurance companies reward customer loyalty. As long as a policyholder is in good standing and remains claim-free, most insurers reduce the cost of their premium each year. The longer you remain claim-free and with the company, the greater the discount. For example, State Farm offers as high a discount as 24% to customers who remain claim-free and have been with the company at least nine years. Some stipulations apply to this discount. To be eligible for State Farm’s discount a policyholder must also have been claim-free during the five years prior to becoming a policyholder.
If the cost of your home insurance premium has gradually increased this discount could actually still be in effect - it's just offset by the increased risk associated with your aging home. To account for the aging structure and utilities, insurance companies apply a substantial discount to new homes that diminishes at a faster rate than your loyalty discount accumulates.
Cover and Claim for Only What You Need
Remember that home insurance is a safety net, not a hammock. Your policy should only cover a financial loss that you otherwise would not be able to afford without compromising your lifestyle. On the other hand, it is possible to purchase more coverage than you need. Make sure you understand that homeowners insurance covers the replacement cost value of your home (not the market value) and other coverages it includes, such as liability coverage. Keep in mind the replacement cost value might still be greater than what it cost to rebuild a home. The reason is replacement cost value should take into consideration any increase in cost of materials or labor to reconstruct a home. If the cost of those increases, so should your replacement cost value. If you have more coverage than you need, consider reducing it to lower your premium.
Remember you should only file a homeowners insurance claim if you cannot reasonably afford the cost to repair your home out-of-pocket. Not only will filing a claim likely exclude you from the automatic claim-free discount, the cost of your premium will increase substantially. Remaining claim-free is vital to keeping the cost of your home insurance premium down. For example, if you have been a policyholder with State Farm for less than 2 years and have one paid claim, your premium will increase 15%. If you have two claims within a three-year period it will go up 35%.
The homes of smokers are statistically at a higher risk of damage than the homes of non-smokers. For that reason, home insurance premiums for smokers are commonly 1% higher than those of non-smokers. The only real stipulation for the non-smoker discount is that everyone in the household be smoke-free for a certain period of time. As an example, Farmers Insurance offers a discount to households that have remained smoke-free for at least two years.
The real value in being a non-smoker is not in the miniscule amount of money a policyholder will save on their homeowners insurance. It’s in improving their health and decreasing the likelihood their home is damaged.
While only 2% of all residential fires are smoking-related, they are very costly. Between 2008 and 2010, there were an estimated average of 7,600 smoking-related fires in residential buildings that caused an average of $326 million in property damage, according to the most recent data from the U.S. Fire Administration.
Install a Central Alarm System
Improving the safety of your home is always a good idea, but the savings on insurance for having an alarm system will never outweigh the cost of having one. However, the discount applied to your homeowners insurance will help offset the monthly cost of an alarm system while providing a greater peace of mind.
Homes with deadbolt locks and a local alarm - one that alerts only those in the immediate area - typically do not qualify for discounts. However, installing a central alarm system that notifies the appropriate agency of a fire or burglary, can make a policyholder eligible for a discount. The discounts for central alarm systems can be as high as 10% off of the cost of an annual home insurance premium.
For example, say your homeowners insurance premium costs $1,000 and you qualify for a 10% discount ($100) because you have a central alarm system. Over the course of a year, that discount equates to less that $9 per month - well below the monthly service fee for a central alarm system. Monthly central alarm systems range anywhere from $35 to $50 per month and there is usually an equipment or installation fee of roughly $100 as well.
|Estimated Installation Cost||$100.00||$100.00||$100.00|
Install a Fire Sprinkler System
Discounts are almost always available to policyholders that have a home fire sprinkler system. Fire sprinkler systems mitigate the risk of property damage, injury and death, which consequently make the house cheaper for home insurance companies to cover. As reported by the Fire Protection Research Foundation, less than 2% of all one and two-family homes in the U.S. have fire sprinklers systems.
Unlike a central alarm system, a fire sprinkler system will eventually pay for itself but that will likely take the life of the home to achieve. Installation of a system during new home construction costs an average of $1.35 per square foot house covered, or $6,026 per system in the U.S. based on National Fire Protection Association data. Adding a system in a home that has been completed would cost even more because of structural obstacles, such as opening portions of the walls.
Discounts for having a fire sprinkler system can be as high as 10% - savings that add up over time. While expensive to install (average cost of an installation in 2013 was $6,026), there is no monthly service fee for a fire sprinkler system, since it is connected to a home’s water source. For example, say you have a fire sprinkler system and qualify for a 10% discount on a $1,000 annual premium. You would save $100 annually, which is great if you were already planning to install the system for the the safety benefits. With policy savings of $100 per year, it'll take a little more than 60 years to pay for itself assuming everything else is constant. The table below shows the cumulative savings for a sample policy and installation.
|Years with a Fire Sprinkler System||Cumulative Sample Savings|
A common concern for those unfamiliar with residential fire sprinkler systems is that once the system in activated, all of the sprinkler heads will drench a home and the belongings inside. This isn’t the case. Each individual sprinkler head is activated by change in temperature, usually spraying water when it detects heat between 135 and 165 degrees Fahrenheit.
Install a Lightning Protection System
Homes with lightning protection systems also get a discount on insurance policies, but it would take decades for the savings to equal the installation cost of the system. Discounts can be as high as 3%, which is the discount offered by AIG, but installation of lightning protection systems costs between $1,500 and $4,200. A bolt of lightning can deliver as much as 30 million volts of electricity which can easily destroy a home, electronics and appliances inside, and start a fire. There were 99,871 paid lightning claims in the U.S. in 2014 that cost an average of $7,400 per claim, according to the Insurance Information Institute.
For example, say your home insurance premium is $1,000 per year and you qualify for a 3% discount after installing a $3,000 lightning protection system. That means you would save $30 per year and it would take 100 years for the savings to accrue up to the cost of the installment.
Limits on Protection Discounts
Every homeowners insurance company calculates surcharges and discounts for various factors differently. Some insurers limit the percentage a policyholders discounts can accumulate to. AIG, for example, limits what they call their “protection credit” to 15%.