Most people don't know what their homeowners insurance policy covers, how much coverage they need or if they are getting the best rates. In fact, they may have bought the policy online or from an agent that handles their auto insurance so they didn't ask any questions.
There are five specific things that you should do to reduce your premium and avoid paying for coverage that you don't need on your homeowners policy:
1. Make sure your policy covers your home’s replacement cost
Ask your agent to show you the replacement cost calculation on your home. Your policy covers the cost to rebuild your home. Many people insure their home for the sale price or the perceived value of the home. Those numbers are not the same.
Your insurance agent should ask you a series of questions and calculate the cost to rebuild your home using an insurance company’s cost calculating tool or a similar calculation tool from an independent company such as Marshall, Swift, and Beck (MSB). Most of the clients that we see coming from an internet-based insurance carrier have the wrong amount of coverage.
2. Check your policy’s inflation rate
Most insurance policies automatically increase your coverage every year to "keep up with inflation." While this might be necessary, some people may not need the increased coverage. Good insurance agents will review the replacement cost with the insurance carrier and can often have the increased coverage removed and the premium reduced.
3. Reduce or eliminate coverage you don’t need
Ask if you can reduce or eliminate coverage that you don't need. For example, if you have coverage for a detached structure like a garage
or a shed, but you don't have either of those, why are you paying a premium for that coverage?
Your personal property or contents coverage is another one that is often inflated by the insurance company. Ask if you can decrease it to what you really need rather than the high amount that they give to you.
4. Increase your deductible
The days of filing claims for a few hundred dollars should be over. You will end up with a rate increase or your policy will get cancelled if you file several claims (side note: Companies that offer you "claim forgiveness" can still cancel your policy).
If you file a small claim, the next one could be a large claim that combined with the small one makes you a "high risk" to the insurance company. Take a deductible of $1,000 or more and don't file small claims.
5. Change the order of the names listed on the policy
In most states, insurance companies look at your credit as a factor in your rates. Some insurance companies only look at the credit of the first person listed on the policy. If you simply reverse the order of the names listed on the policy, a lower credit score for the person that is now listed first may qualify you for lower rates.
Finally, you should always shop around. Insurance companies are streaky. They may have great rates for a few years and terrible rates for the next few years. If you find an independent agent they will do the work for you and move you from one insurance company to another so that you always have the lowest rates.