Tips for Savings on Homeowner’s Insurance

As you go through the process of applying for mortgage loans of any kind, there will be many areas in which you can save time and/or money. One of them is homeowner’s insurance.

Most property owners leave it up to their insurance agents to obtain the right coverage at a reasonable cost. But this can be a costly mistake.

Real estate expert Bob Bruss delivers a couple tips below regarding various coverages and how to cut premium costs, while explaining how increasing coverage can pay off with major savings.

DON’T INSURE FOR THE MORTGAGE BALANCE. Millions of homeowners make a very expensive mistake by insuring their homes for the amount of their home loan balance.

The costly result is often unnecessary overinsurance for more than the home’s replacement cost. But lenders don’t complain and neither do insurance agents because they collect sales commissions on the unnecessary over-spending.

Overinsurance usually occurs when high land value (which won’t burn in a fire) is included in replacement-cost insurance. For example, approximately 50 percent of Bruss’ home’s market value is in the indestructible land value. Therefore, he is required to insure only for his home’s replacement cost, which is about $200,000 less than his 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.

What to do: The best way to avoid being over- or underinsured is to ask your insurance agent to estimate your home’s replacement cost. Disregard land value. To illustrate, suppose you own a 2,000-square-foot house and in your area it will cost $200 per square foot to reconstruct your residence if it burns to the ground.

The result is you should carry about $400,000 replacement cost insurance, even if the market value of your property is greater.

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

RE-SHOP FOR PROPERTY INSURANCE EVERY THREE YEARS. Your insurance needs change more often than you may realize.

Over the years, for example, Bruss saw his need for homeowner, rental property and business insurance has changed. A few times hd discovered he could save several hundred dollars by switching his insurance to a different broker who was an agent for a “no name” insurance company.

However, he stuck with his same agent for the last 30 years because (1) he periodically suggests how Bruss can save on his insurance premiums or improve his coverage, and (2) on the few occasions when Bruss had claims, the agent made sure he got paid in full even when he had to battle with the insurance company on Bruss’ behalf.

That’s what a good insurance agent is supposed to do.

However, if you are unhappy with the premiums being too high or the lack of full payment for your claims, you ought to switch to another insurer in a heartbeat.

Never remain in a situation that doesn’t feel right. There are too many agents and too many policies out there. Keep options open at all times.

Additional ways to save on insurance premiums include:

1. Taising the deductible amount to eliminate small insurance claims that you can afford to pay yourself
2. If you have a net worth over $1 million, consider lowering your property and automobile liability coverage and raising your umbrella liability policy coverage
3. Evaluate actual cash value instead of full-replacement-cost personal-property coverage. More details are available by consulting at least three local homeowner’s insurance agents to compare their policy coverages and costs.