"Tips To Save Money On Your Homeowners Insurance" 

If you are a homeowner or a real estate investor, you might want to look into your insurance coverage. Most property owners leave it up to their insurance agents to obtain the right insurance coverage at a reasonable cost. But that can be a big mistake. Understanding property insurance coverages and how to cut premium costs while increasing coverage can result in major savings.

DON'T INSURE YOUR HOME FOR THE MORTGAGE BALANCE. Many homeowners make a costly mistake by insuring their homes for the amount of their mortgage balance. Mortgage lenders encourage this "mistake" by telling their borrowers to buy homeowner's insurance for the amount of the mortgage balance.

The costly result is often unnecessary over-insurance for more than the home's replacement cost. But lenders and insurance agents do not complain because they collect sales commissions on the over-insurance.

What is over-insurance? Over-insurance occurs when high land value is included in replacement-cost insurance. For example, if your land represent 50% of the value of your home's market, then 50% is in the indestructible land value. Therefore, you should insure only for your home's replacement cost, which is about in this case 50% less than your mortgage balance.

Worse, many homeowners are vastly underinsured because they carry replacement-cost insurance for only their low mortgage balance. In the event of a major fire loss, these homeowners will be shocked to discover their insurers don't have to pay the full loss amount.

The best way to avoid being over-insured or underinsured is to ask your insurance agent to estimate your home's replacement cost. That means that you need to disregard land value. To illustrate, suppose you own a 3,000-square-foot house and in your area it will cost $150 per square foot to reconstruct your residence if it burns to the ground. The result is you should carry about $450,000 replacement cost insurance, even if the market value of your property is greater.

In other words, your mortgage balance has absolutely nothing to do with the amount of homeowner's replacement cost needed.

Another way to save on your homeowner's insurance is to insure for the depreciated actual value rather than for full replacement cost of personal property.

That means when an insured loss occurs, such as due to fire, theft or accident, the insurer will pay you only the depreciated value of the property loss. In other words, the insurer won't pay the full replacement cost of the item.

Another way my insurance agent saved me money a few years ago was to suggest I raise my deductible on my property. The result is lower insurance premiums. If you can afford to pay small losses yourself, the insurance company saves money and you avoid the risk of a higher premium or cancelled insurance.

RE-SHOP FOR PROPERTY INSURANCE EVERY 3 YEARS. You should re-shop your property insurance every 3 years just to be certain you are not paying too much and to make sure you have adequate insurance for your risks.

Carrying actual cash value rather than replacement-cost insurance is a controversial way to save insurance premiums. However, if you can afford to pay for personal-property replacement, why not save on insurance premiums?

Additional ways to save on insurance premiums include; raising the deductible amount to eliminate small insurance claims that you can afford to pay yourself, if you have a net worth over $1 million, consider lowering your property and automobile liability coverage and raising your umbrella liability policy coverage, and evaluate actual cash value instead of full-replacement-cost personal-property coverage.
 

Andre Plessis

It's All About You!