Insurance

Ask Jean Thursday: Homeowners Insurance How-To

Posted by Jean

My homeowner’s insurance is to be renewed in September. I am reviewing my State Farm policy (have had insurance home and auto with them some 30 years) and do not understand much about it at all. How do I buy homeowner’s insurance? How do I know the company is reliable? Any tips? Where can I go to check on various companies? What do I need to watch for?

-Leslie, California

Before you look into renewing your policy with the same company, take some time to reevaluate things. Have you made any additions to your home that would increase the amount of coverage you need? Do you have a floater (extra insurance for items in your home that aren’t covered by your standard policy) on your policy that’s irrelevant now?

You’ll also want to check and see if you’re eligible for any discounts with your current company before you decide to stay with your current provider or switch. Because you’ve had both your homeowners insurance and auto insurance with the same company for so many years I would say that you’re on track for a discount, if you’re not getting one already. Companies will often offer a discount for having both your auto and homeowners insurance with the same company. They’re also likely to knock a percentage off your premium for being loyal for a significant number of years. These discounts can be anywhere from 5-15%.

If you’ve put in a call to your provider and you don’t like the price you’d be paying if you renewed, do some shopping around. Sites like insure.com and insurance.com provide free quotes from a variety of different carriers. After you’ve got a rough idea of where you can get the best deal, make some calls to the different providers to get an idea of what your premium would be.

Ultimately, the premium you’re going to pay is based on the risk you present to the insurance company. If the company feels they’re taking a big risk by offering you coverage, you’re going to be paying a higher premium. Luckily, there are things you can do to downgrade the level of risk you’d present to the company.

For one, making your home more secure (by installing things such as deadbolts and a security system) can reduce your premium by about 5%. Minimizing the risk of fire by installing smoke detectors, kicking your smoking habit if you have one, and equipping your home with fire extinguishers also will result in a less expensive premium.

Then there’s the financial aspect. Raising your deductible can reduce your premium. Your deductible is the amount you agree to pay per claim toward the total amount of an insured loss. Most companies recommend that your deductible be at least $500. If you raise your deductible significantly, say from $500 to $1,000 you could potentially save around 25%. Just make sure that you’d be able to pay the higher deductible in the event that something did actually happen.

Keeping your credit score high affects how much you pay too. Your “insurance risk score”, which is similar to a credit score, is taken into account by providers to determine just how likely you are to file a claim. According to the Insurance Information Institute, people who have a poor insurance risk score are more likely to file a claim. But insurers aren’t looking at how much debt you have, they’re looking to see how consistent you are with making payments.

When you’re making calls to providers, keep in mind that many of them offer discounts for a variety of things. Does your employer administer group insurance programs? Are you part of a professional association that offers group insurance? Are you 55 or older and retired? These things might net you a better deal on your premium.

Once you’ve compared the costs, take a look at provider’s complaint ratios and financial ratings. You can check complaint ratios with your state’s insurance department or with the National Association of Insurance Commissioners. You’re also going to want to check the company’s financial ratings. You can do so through Standard & Poors or Moody’s.

One final word of advice: Don’t just choose a provider based on price alone. It’s definitely worth shelling out just a little bit more to get a financially stable provider that will be able to pay for a claim should one arise.