Home insurance is designed to protect you and your loved ones from harm. Your home may be burglarized, or it may become damaged due to a flood, fire, earthquake, or hurricane. You will also need to take on a home insurance policy to qualify for a mortgage.
In addition to protecting your family and property from theft, vandalism, arson, and Acts of God, you may also be protected via personal liability if someone sues you due to an injury that they suffered while on your property.
Here, however, our focus will be on how you can lower your insurance costs to save money while still being fully protected.
Why Do You Need Home Insurance?
Home insurance is a contract between you and your insurance provider. You will be covered in the event of theft, arson, vandalism, Acts of God, and personal liability. Your home is likely the most valuable asset in your possession.
Homeowners insurance will protect your home, as well as all of your belongings. Also, your out-of-pocket expenses will be covered if your home becomes inhabitable due to a fire, flood, earthquake, tornado, etc.
For example, you may need to stay at a hotel for a few months while rebuilding your home. Moreover, your lender may require that you take out a homeowner’s insurance policy to qualify for a mortgage.
As such, home insurance may be mandatory if you wish to purchase a home.
Major Factors that Affect Your Insurance Premium
- Replacement cost is a crucial factor. Replacement cost is calculated by determining how much it would cost your insurance company to rebuild your property to its present state. It has nothing to do with how much your mortgage is for, nor is it impacted by the present market value of your property.
- Your neighborhood will also have an impact. High crime rates will cause an increase in your premium due to the higher risk of criminal activity like burglary or vandalism. Living near an airport or a large body of water may also increase due to the risk of flooding or falling debris.
- Proximity to hydrants and fire halls will also matter. If your home is situated near a fire hall and multiple hydrants, then your premium will be lower, as your home will be less likely to be destroyed in the event of a fire.
- The value of your home’s contents will also have an impact on how much you will be required to pay. If you have many valuable items, you will need additional coverage to ensure that they are protected. The additional coverage will end up costing you more.
- Your postcode will also have an effect. Living in an affluent or ‘posh’ neighborhood will affect your premium. Some areas are vulnerable to subsidence or flooding, while other areas may have high rates of violent crimes, which may cause your premium to increase.
- Your type of electrical system also matters. If your home consists of older aluminum wiring, it will cost you more to insure your home, as old wiring systems serve as a fire hazard. Generally speaking, homes with antiquated electrical systems will cost more to insure. Interestingly, having a security system may help lower your premium. Smoke detectors, fire alarms, deadbolt locks, and double glazing may also help lower your insurance premium.
- Your insurance provider will also evaluate your claims history. If you have a history of multiple claims against your insurance, then you should expect to pay more.
- Your credit score also matters. A higher credit score will usually be rewarded with a lower premium. The size of your home is also of significance, as larger homes will cost more to insure due to the added costs incurred during a rebuild.
Tips for Lowering Your Insurance Costs
Try to raise your deductible if you can. Most companies will recommend at least $500, but if you can raise it to at least $1,000, you may be able to save up to 25% on your premium.
Also, try to combine your auto and home insurance policies, as your provider may provide you with a multi-policy discount.
Improving your home security will also help lower your premium. A state-of-the-art home security system with 24/7 home monitoring services will lower your premium, as your home will be seen as a lower risk for theft.
Maintaining a good credit score is also important, as a high score indicates sound financial planning and judgment. We would also suggest that you shop around to compare and contrast rates to save some money.
You should also buy a longer policy, as policies that range between three and six months may be subject to price penalties. Also, seek out other discounts if you can. For instance, loyal customers may be rewarded with a discount, and updated homes may also be eligible for a discount.
You should also review your coverage on an annual basis. You will want your policy to cover any significant new upgrades to your home, as well as any special home purchases. However, you also do not want to pay for coverage that you do not need.
If needed, make the switch to a new home insurance provider that offers a more affordable homeowners insurance policy.
Protect What Matters Most
A home insurance policy serves as a contingency plan for a worst-case scenario. Accidents do happen, and your policy is designed to protect your family, home, and belongings from theft, vandalism, arson, natural disasters, and litigation.
In some cases, you may be legally required to take out a homeowners insurance policy to obtain a mortgage.
You can take many steps to lower your insurance premium, including improving your credit score, combining multiple policies, and shopping around to find a better rate.