Here is a great article that outlines how you might be able to save money on your homeowner's policy:
Homeowners Insurance: Time for an Annual Check-Up
Published: August 28, 2009
An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook.
What type of coverage do I have?
The most effective type of coverage is known as “replacement cost,”
which covers, up to your policy limits, what it would take today to
rebuild your house and restore your belongings, says Jerry Oshinsky, a
partner at Jenner & Block in Los Angeles who has represented
homeowners in litigation against insurers.
“Extended” replacement cost coverage provides protection to your
policy limit, say $500,000, and then perhaps another 20% of the cost
after that. Percentages vary, but in this example you could recoup up to
$600,000 on a $500,000 policy, assuming your losses reach that high.
Extended coverage can compensate for any unanticipated expenses like
spikes in construction costs between policy renewals. Now harder to find
due to the industry shift toward extended replacement coverage, “full”
or “guaranteed” replacement coverage covers an entire claim regardless
of policy limits.
A less attractive alternative is “actual cash value” coverage that
usually takes into account depreciation, the decrease in value due to
age and wear. With this type of policy, the $2,000 flat-screen TV you
bought two years ago will be worth hundreds of dollars less today in the
eyes of your claims adjuster. Kevin Foley, an independent insurance
broker in Milltown, N.J., favors replacement cost coverage unless you
can save at least 25% on the premium for going with actual cash value
coverage instead.
Even if you have replacement cost protection for your dwelling and
personal property, don’t assume everything is covered. Structures other
than your home on your property—such as a detached garage or swimming
pool—require separate coverage. So too do luxury items like jewelry,
watches, and furs if you want full replacement cost because
reimbursement for those items is typically capped.
How much coverage do I really need?
OK, now that you’re clear on what type of policy you have, you need to figure out how much policy you
truly require in dollar terms. Let’s say you purchased your home five
years ago and insured it for $200,000. Today, it’s worth $225,000.
Simply increasing your coverage to $225,000 may nonetheless leave you
underinsured. Here’s why.
The key to determining how much dwelling coverage you need isn’t the
value of your home but the money you’d have to pay to rebuild it from
scratch, says Carlos Aguirre, an agent for Liberty Mutual Insurance in
Arlington, Texas. Call your local contractors’ or homebuilders’
association and inquire about the average per-square-foot construction
cost in your area. If it’s $150 and your home is 2,000 square feet, then
you should be insured for $300,000.
There’s no rule of thumb for how much your homeowners insurance
should cost. Insurers use numerous factors—age, education level,
creditworthiness—to determine pricing, so the same policy could run you
more than your neighbor. In recent years the average annual premium was
$804. Oshinsky advises against scrimping on insurance because big
increases in coverage probably cost less than you’d think. He recently
purchased a liability policy that cost $250 for the first $1 million in
coverage. Adding another $1 million increased his premiums only $12.50
more.
How can I lower my premiums?
The higher your deductible, the amount you pay out of pocket before
coverage kicks in, the lower your premium. Landing on the appropriate
deductible level requires remembering that insurance should cover major calamities,
not minor incidents, says Foley, the independent insurance broker. Most
homeowners should be able to absorb modest losses like a broken window
pane or a hole in the drywall without filing claims. If you can, then
you’re wasting money with a $250 deductible.
Foley’s rule: If you’re a first-time homeowner and don’t have a lot
of savings, moving up to a $500 deductible will probably stretch your
budget. However, if you live in a ritzy home and drive an expensive car,
then you should be able to afford a $1,000 deductible. In Milltown,
N.J., for example, the premium for a $200,000 home with a $500
deductible would be $736, according to Foley; moving up to a $1,000
deductible drops the annual premium to $672. That's $64 in savings.
Every major insurer offers discounts to various groups, such as
university employees or firefighters. Figure about 5%. Ask which
affiliations would entitle you to a discount and how much. If an AARP
membership would result in a $50 savings, pay the $16 dues and pocket
the $36 difference. Many insurers also offer discounts ranging from 1%
to 10% or more for installing protective devices like alarms and
deadbolt locks, for going claim-free for an extended period, or for
insuring both your car and your home with the same carrier.
