Put a Premium On Your Home Insurance

Written by Blanche Evans on Thursday, 26 June 2014 12:00 am

There are two reasons to buy hazard insurance for your home -- to protect your lender and to protect yourself. If you use the purchase price of your home for the insured amount, you may believe you have all bases covered.

But, you could be in for a nasty surprise if you have to make a claim. Your purchase price and the cost to replace your home can be thousands of dollars apart, especially if you bought your home at a discount, or if you've owned your home for some years and haven't increased your premium.

In 1992, the median price of a new home in the U.S. was $52.31 per square foot, says the National Association of Home Builders. By 2013, the median cost was $95 per square foot. In some high-cost areas such as California, building costs can be much higher. If you purchased your home for less than the median per square foot, you could be underinsured.

According to the National Association of Insurance Commissioners (NAIC), you should review your dwelling coverage annually to make sure it doesn't drop below the cost to replace your home. "If it drops below 80% of the full replacement cost of your home, your insurance company may reduce the amount that it will pay on a claim," posts the NAIC consumer guide.

So how do you determine replacement costs? First, insurance doesn't include land and landscaping, only the main building and any other buildings included in your policy. Ask your real estate professional to help. He or she can give you prices per square foot for homes similar to yours. Compare those numbers to similar homes that are newly built in your area.

You can also call your insurer and ask to reevaluate your insurance needs. Insurance companies have cost-to-repair and cost-to-replace prices for your area. If you want to save money, there are many things you can do:

  • Shop your insurance with other providers.
  • Insure your car with the same insurer to get a discount.
  • Raise your deductible. From $500 to $1000, you can save about 12% annually on your premium.
  • Pay your bills on time. Good credit gets lower premiums
  • Be loyal. Some insurers give discounts to long-term customers.
  • Don't smoke.
  • Step up alarms around the house, including smoke and carbon monoxide detectors.
  • Check your policy annually. Your may be able to get your premium lowered with as little as a phone call.

To protect your assets, make sure you not only cover basic fire insurance, but that you also get flood, earthquake, and any other natural disaster insurance that is appropriate to your area. You also may be limited to coverage for personal belongings, typically half the amount of your dwelling coverage.

Many factors affect the premium you pay, including which insurance company you choose. Different insurance companies charge different premiums for similar coverage, so shop around.

Once you give your insurance company and quote to your lender, your lender will insist that you escrow your premiums, and may ask you to pay a year's worth in advance. Every year when your insurance premium comes up for renewal, you can review your situation with your lender.