Insurance is one of those things that no one gets excited about. It’s like brushing and flossing your teeth; the few people who are really into it make a career out of it and the rest of us just go along with it because it’s the adult thing to do. But no matter how you feel about it, insurance is important to protect you from financial ruin, just like good dental care can save you from gum disease.
Today we’re going to talk about homeowners insurance specifically. This is a must for anyone who owns a home. Even if you don’t have a mortgage company telling you to buy it, you need it. I’m telling you to buy it. All it takes is one broken pipe to sink your finances and I don’t want that to happen to you. You can even use your housing allowance to pay the premiums, which makes it even more affordable.
Now that I’ve convinced you of the importance of having homeowners insurance, here are a few tips:
Review Your Policy Annually
When you first buy your homeowners insurance, your coverage is based on your home value. Did you know that home values go up over time? According to Zillow, which I swear must be wrong, my house has gone up in value almost 90% since I bought it just over 7 years ago. If I were to have a house fire today and only had the coverage I purchased 7 years ago, then the insurance company would only cover about half of the damage. Wouldn’t that be an unpleasant surprise?
It’s important to check your policy every year to make sure that it still accurately meets your needs. Perhaps your home has gone up in value or you build a deck or garage and you want to make sure it is covered. Or, you may have had extra insurance specifically for a valuable possession that you no longer own. You could save money by dropping that coverage.
Only Insure Your House
If my house burns down and I have to replace it, will it cost the same as my Zillow home value? No! Zillow tries to show how much I could get if I sold the home, which includes the land and the building I live in. If my house burns down, I only need a new house, the land itself is just fine. As such, you only need to insure the value of the structures on the land and not the land itself. A good insurance agent can help you figure out how much coverage you need, just don’t be surprised if it is less than you could sell for.
Bundle Your Insurance Policies
I’m a fan of buying your auto, homeowners, and other liability insurance policies all from the same company. Why? Two reasons. First of all, they usually give multi-line discounts if you have more than one policy in place. The discounts can be pretty significant, too. Second, you’re less likely to have gaps in coverage when one company is handling all of your policies. If they see a gap, they will bring it to your attention (I hope!).
Raise Your Deductible
Whether it’s home or auto insurance, raising your deductible usually lowers your premium. If you have a healthy emergency fund in place, you can afford to take on a little more risk by raising your deductible. However, if you’re broke and can barely scratch two pennies together, you’re likely better off with a lower deductible. You don’t want $5,000 of carpenter ant damage to throw you into the vicious cycle of high-interest rate credit card debt.
Keep Your Credit Up
Most insurance companies nowadays use credit reports to determine premiums. While that may not sound fair or logical, there is a very strong correlation between a person’s credit score and the number of claims they file. I was really surprised at how strong the evidence is when I was studying for my Master’s. So, pay your bills on top and keep your credit score up and you will end up paying lower insurance premiums. This applies to auto insurance as well.
Keep Your Claims Down
Speaking of filing claims, this is one area where you can have too much of a good thing. Insurers don’t like it when you file claims because it costs them time and money, so they raise rates on those who do so frequently. They sometimes even drop policies of overactive claim filers. Most of the time, you are better off raising your deductible and paying for smaller repairs instead of filing claims for them.
Enhance Your Safety & Security
If you take on the responsibility of protecting against risks, your insurance company will often reward you for it. You can earn discounts by installing things like deadbolt locks, burglar alarms, and smoke detectors. A home security system could even get you a discount of up to 20% with some insurance companies. Before pouring a bunch of money into this, check with your insurance company to make sure you get the most bang for your buck.
Know What You Own
Three years ago, my home was broken into while I was volunteering in my daughter’s preschool. They stole my laptop, two jewelry boxes, and my husband’s brand new watch. My insurance company was great to work with and I was financially restored, but first I had to provide them with a list of everything that was stolen. One of those jewelry boxes I had had since I was 13 and it contained items that I had accumulated over several decades. Do you know how hard it was to try to remember what was in it?
If anything ever happens to your stuff, whether a fire or a burglary, it’s INCREDIBLY helpful to already have a list of what it is that you owned. And yet how many of us have that? Ideally, you would keep a detailed list of all of your valuables with information such as the date of purchase and receipts. Realistically, though, I would encourage you to pull out your phone, start recording, and walk through your house aiming it at everything you own. Save the video online somewhere that you’ll remember where to find it. Then, if anything ever does happen, you can at least watch the video to see what it was that you had that needs replacing.
Homeowners insurance is a very important defensive mechanism for your financial life, but it is easily ignored. Don’t treat it like the sound guy at church and only pay attention when something is wrong. Pay attention to your policy now, follow these tips, and if something does go wrong, hopefully, it won’t be as bad as it would have been.
