Strapped consumers often look to their homes as a potential cash cow. However, these days taking out a home equity loan or line of credit is practically a pipedream. But there is one way to reap some financial benefits from your home: through homeowners' insurance.
Premiums on homeowners' policies can cost thousands of dollars a year, but they don't need to be so pricey. Insurers base their premiums on the square footage of the home, the estimated cost to rebuild it, neighborhood crime and the relative danger of natural disasters -- almost all of which are constantly in flux. By reassessing your coverage and taking steps to lower your risk profile, you can keep hundreds of dollars in your wallet.
Seeking such savings should not entail cutting corners on your policy, though, cautions Noreen Perrotta, finance editor for Consumer Reports. Should an inadequately-covered home get destroyed by a fire (or any other disaster), the owner may not have enough money to rebuild it.
Here's how to save without putting your home at risk:
Maintain a healthy credit score
A poor credit score does more than hurt your chances of landing a loan. Coupled with negative factors, such as a history of late payments or numerous insurance claims on your home, a poor score can prompt an insurer to raise your premiums, warns Loretta Worters, vice president for the Insurance Information Institute, an industry trade group. On the other hand, a stellar score serves as added proof to the insurer that they aren't taking too much of a risk on you, which can result in a better rate. (For tips on how to raise your credit score, read our story).
Inquire about discounts
Ask your insurance provider whether they offer a reduced rate for bundling policies, say, a homeowners and an auto policy, says Jeff Leiman, senior director of J.D. Power and Associates' insurance practice. Such a move can yield discounts of up to 15%. Also, some insurers offer loyalty discounts of 5% to 10% on premiums to customers who've held policies at least three years, reports the Insurance Information Institute. If you can't finagle a better rate in either of those ways, then shop around. Start by visiting rate comparison web sites like Insurance.com and NetQuote.com.
Increase your deductible
Just a small increase in the amount you're responsible for should disaster strike can pay off big in premium savings, says Perrotta. A homeowner who raises his deductible from $250 to $500 could save as much as 15% on monthly premiums. If they raise it to $1,000, they can save up to 25%.
Disaster-proof your home
Simple safety improvements, such as buying a fire extinguisher or installing a smoke alarm or deadbolt lock can reap a discount of up to 5% with most insurers, says Perrotta. Expect even bigger rewards for larger projects, like installing shatterproof windows (10% in windstorm-prone areas) or high-tech security systems (15% to 25%). Just make sure to check your insurer requirements before you start knocking out the windows.
Another potential safeguard: you. Most insurers offer discounts of up to 10% to retirees. The assumption is that retired people spend more time at home, therefore they can react swiftly to incidents such as a fire or a broken water pipe, says Worters.
Monitor neighborhood changes
Where you live is a primary factor in your insurance rate, says Worters. Alert your insurer to any changes in your neighborhood that could lead to a more favorable rating, and in turn, less expensive premiums. For example, new storm drains may prevent flooding, while installing extra fire hydrants and clearing brush from empty lots will help reduce possible fire damage.
Pay promptly
Insurers like to know your payments are a sure thing, especially in today's economy, says Leiman. Signing up for automatic payments that are debited from your checking account can often land a discount. Or, if you can afford it, pay your annual bill all at one time. That way, you avoid the monthly convenience fee of $2 to $5 that many insurers tack on.
Assessing Insurance When You Buy
If plunging real-estate prices are enticing you to buy a home, make sure to factor in homeowners' insurance costs as you shop. "You may be able to afford the house, but find you can't afford the insurance," says Worters. Ask the current owner how much he pays, and consider these five factors:
Construction materials
Ask insurers which materials are preferred locally. A brick house in Long Island, N.Y., would get a favorable rate for its ability to withstand wind, says Worters. But the same house would be far pricier in Los Angeles, where brick is among the least stable in an earthquake.
Home systems
You'll pay up to 15% less if the home's heating, plumbing and wiring systems are less than a decade old, says Perrotta.
Flood zoning
If your home is in a zone at risk for flooding, it requires extra insurance -- adding an average $400 annually, according to the Insurance Information Institute.
Neighborhood
The home's proximity to a fire hydrant and the nearest police station, as well as its crime rate and other factors, help determine the risk level of your neighborhood. The more risk, the bigger your premiums.
Past claims
Ask the seller to provide a copy of the home's Comprehensive Loss Underwriting Exchange (CLUE) report, which details the property's history of insurance claims.
