How to Lower Your Homeowners Insurance Premium (When Costs Skyrocket) - Expert Guidelines

If you're paying $5,000 or more for homeowners’ insurance, it's easy to feel like your budget is on life support. But high deductibles, expensive repairs, severe weather claims, construction costs, and even shifts in underwriting guidelines can cause rates to rise - even if you've never made a claim.

The silver lining? There are a number of ways to save on your premium, including finding the best insurance carrier, determining the value of your home to the provider, updating risk-reducing home improvements, and looking carefully at your deductible.

What You Should Know:

• Compare multiple carriers: An independent insurance broker can get quotes from multiple carriers, whereas a direct carrier usually quotes only its own product.

• Ask about risk-reduction discounts: Depending on your carrier and location, roof upgrades, structural improvements, security features, and water-detection discounts may be available.

• Bundling discounts: You may save money by bundling your home and auto insurance with the same carrier.

• Consider your deductible: Raising your deductible could lower your premium, but only do this if you can afford to pay the deductible when a claim arises.

• Don't sacrifice needed coverage: The least expensive coverage isn't always the most affordable option when a claim occurs.

Why Rates Have Increased So Much?

Your rate is based on risk and projected losses. Several factors determine your rate, including the condition and location of your home, roof, square footage of your house, the replacement cost for your house, your claims history, severe weather, and the underwriting guidelines from your carrier. It may not make financial sense to change carriers if you've never made a claim.

Before you conclude that you're overpaying, it's a good idea to have your existing provider go over your policy. The value of your house may need to be updated, your dwelling coverage may be higher than needed, or special coverage may be eliminated based on an outdated survey. Always compare both price and coverage when considering a new carrier; the National Association of Insurance Commissioners (NAIC) recommends.

Independent Agent vs Direct Carrier - Who Offers the Best Rates?

While there isn't a guarantee that a switch will save you money, an independent insurance agent may help you find a wider range of options than a direct carrier.

Review your home improvement options with the agent

While asking your independent agent "do you have the cheapest rates?" is understandable, you should ask them to compare similar coverage options, including the dwelling, umbrella, and liability coverage, deductibles, and discounts. The dwelling coverage amount is typically based on the value of your house, not the purchase price. While the cheapest policy may seem best at first, a lower premium with less coverage may leave you paying more out-of-pocket when a claim occurs.

5 Home Improvement Projects that Immediately Lower Insurance Premiums

Unfortunately, there's no universal home improvement that reduces premiums for everyone. Discounts are based on different criteria, depending on your location and carrier, so ask the carrier what discounts you'll receive before you make any home improvements.

1. Roof replacement or upgrades

Replacing your roof with impact-resistant roofing materials or upgrading to a stronger roof can reduce some weather-related damage. The Insurance Institute for Business & Home Safety (IBHS) offers FORTIFIED standards and certifications that show your home can withstand high winds and wind-driven rain, and you may receive a discount from your carrier if your roof meets these standards.

• Ask your carrier about roof discounts and how your current roof affects your premium.

2. Water leak detection discount

Water damage can be devastating and expensive to repair. Water leak detection discounts may be available with some providers if leak detection devices are installed.

• According to the NAIC, you may receive a discount on your premium between 2% and 15% if you install water leak detection devices or systems to help prevent and detect leaks.

3. Fire discount

Fire discounts are given when you install fire suppression technology or devices around the house. Smoke detectors, fire extinguishers, fire alarms, residential sprinklers, and fire-resistant materials are just a few examples of fire protection features that may benefit you.

• Be sure to maintain life safety devices that may qualify for a discount, and keep records of any devices or improvements for your insurance provider.

4. Security discount

Most insurance providers offer a discount for deadbolts on entry doors, alarm systems, security systems, and burglar alarms.

5. Weather discount

Depending on your climate and the severity of the storms in your area, you may be able to take advantage of weather discounts through home upgrades and modifications, as long as they meet carrier requirements.

• Ask your carrier what weather risks apply to your home and what modifications will provide the most benefit and qualify for a discount.

How High Deductibles Lower Your Premium

Your deductible is the amount of your premium you pay out of pocket before the insurance company pays for repairs. Increasing your deductible generally reduces your premium.

For example, ask your broker to quote you a rate with a $1,000 deductible, $2,500 deductible, $5,000 deductible, $10,000 deductible, or another level that's appropriate for your situation. If you increase your deductible by $2,500 to $5,000, your out-of-pocket cost for repairs would only reduce by $150 per year; you're accepting another $2,500.

Keep in mind that some insurance carriers use percentage-based deductibles, typically for wind and hail damage. The amount you pay as a deductible will depend on the value of the damaged item.

Bundling Your Auto and Home Policies to Save Hundreds

Bundling your home and auto insurance may provide a multi-policy discount. The NAIC confirms that many insurance carriers offer multi-policy discounts; however, it's important to understand that purchasing two policies on the same carrier may limit your options.

Rather than comparing your homeowner’s insurance against other homeowners’ insurance, try comparing total cost of insurance.

Consider this example:

• Carrier A offers a 20% discount on your home, but raises your auto premium by 50%

In this example, bundling does not save you any money.

Your Plan of Action When Paying $5000 or More for Homeowners Insurance

If your premium has become unmanageable, here are the things you should consider before simply renewing your current premium:

1. Request your current declarations page and review your coverage, including everything that is and is not covered by your policy.
2. Ask your current provider what discounts you are eligible for.
3. Ask an independent carrier to get you quotes from multiple carriers.
4. When comparing carriers, ask for similar coverage amounts and deductibles.
5. Specifically ask about discounts in the criteria that is important to you, including roof, water leak detection, security, fire, and severe weather discounts.
6. Ask for different deductible options so that you can weigh the trade-off between a lower premium and higher out-of-pocket costs.
7. Compare bundled premiums between carriers, and compare bundled home and auto premiums to separate home and auto premiums.
8. Make sure you understand the replacement value and liability coverage limits of the new carrier.
9. Do not cancel your current policy before you have confirmation that your new policy is in effect.

Final Thoughts

Insurance costs can skyrocket, and the cheapest coverage option isn't always the most financially sound, especially when it comes to serious damage. For those with a $5,000 or more annual premium, the combination of a careful review, accurate valuations from the carrier, discounts from home improvements, a higher deductible, and a thorough review of your policy can lead to hundreds - or even thousands of dollars - in savings without leaving you underinsured.