Think you're paying a ridiculously high price for home insurance?
If you haven't reviewed your policy in a few years, or unknowingly have errors in your credit report, there's a chance that you may be paying more than you need to.
So, before you spend a dollar more than you need to on home insurance, check out these reasons why your rate may be high, and more importantly, how you can fix it.
Reason #1: You Have a Low Deductible
If a tree falls on your house or your kitchen catches fire, how much will your insurance policy require you to pay out of pocket as a deductible? If your answer is below $500, then you're likely facing a hefty premium.
Here's why: If you carry a low deductible, the insurance company offsets their risk by charging you a higher premium, says Amy Bach, executive director of United Policyholders, a non-profit organization that offers consumer information on insurance issues.
However, "the higher your deductible, the more money you save on your premium," says the Insurance Information Institute's (III) website. "Consider a deductible of at least $500. If you can afford to raise it to $1,000, you may save as much as 25 percent," adds III.
Reason #2: Your Policy is Outdated and You're Paying for Coverage You Don't Need
Did you sell that boat? Or did you take advantage of a special offer for expanded coverage at a discounted rate - which has now expired? If so, you're not alone.
All too often, people pay for coverage they don't need, and even for items they no longer own, Bach says.
For that reason, Bach suggests doing an annual check-in with your agent to review your coverage.
"Make sure you don't have any extras that you don't need, and that you're taking advantage of any discounts that you qualify for," she says.
Another thing to keep tabs on is the value of your items. For example, the III points out that you could still be paying top-dollar to insure a fur coat that's no longer worth the $5,000 purchase price. If this is the case, III recommends reducing or canceling your "floater," which is the extra insurance paid for high value items, like jewelry.
Lifestyle changes are another factor that could change the amount of coverage you need, according to III. For example, if your children have packed their bags and moved out of the house, this decreases the amount of belongings that must be covered by your policy.
Reason #3: You Have a Low Credit Score or Errors in Your Credit Report
"A lot of people don't realize that your credit score impacts what rate you're getting," Bach says, but a lower credit score means you're a greater risk for an insurer, Bach says.
Essentially, insurers use your credit score to generate an "insurance score" when determining home insurance rate, according to the III. Why? Because, "actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims."
So the lower your credit score, the higher your home insurance rate.
For this reason, Bach suggests that you "check your credit report occasionally to make sure there are no errors that could put you in a higher-risk category," she says.
According to New York-based insurance agent Eustace Greaves, Jr., potential factors or errors in your credit that could cause you to pay more include "repossessions, collection items, judgments, late payments, [or] bankruptcies in the last five years," he says.
If you find that your credit score causes you to be a risk to insurers, try to improve your score. On the other hand, if you find errors in your credit report, the Federal Trade Commission's website recommends sending a written dispute to both the credit reporting agency and the creditor.
Reason #4: Your Home isn't Safe
Is your home lacking deadbolts, a smoke detector, or a burglar alarm?
Besides increasing your family's safety, adding security elements like these could also save you at least 5 percent on your premium, according to the III.
Simply put, increased safety means there's a decreased risk that you will need to ask your provider to cover the damage from a burglary or fire, for example. As a result, they'll reward you with a lower premium.
In fact, "some companies may cut your premiums by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations," notes the III.
However, because every alarm system differs, the III recommends checking with your insurer on which type meets their requirements and how much it will reduce your premium.
Reason #5: You Haven't Consolidated Your Coverage
More is less? Insurance companies seem to think so.
"Some insurance companies will reduce your premium by 5 percent to 15 percent if you buy two or more insurance policies from them," notes the III. However, it adds that you should ensure the bundled price is indeed lower than if you were to receive coverage, like homeowners and auto, from different insurers.
Often times, you'll see some significant savings - as much as 30 percent - according to data from Consumer Reports' 2012 "Homeowner insurance buying guide."
The National Association of Realtors (NAR) adds that some providers aren't as forthright about promoting "multiple-policy discounts," so make sure to ask - and ask for specifics on how much you could save. You also shouldn't be afraid to haggle, the NAR says. If you've found lower rates with other companies, your insurance company may be willing to provide a lower quote to keep you.
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