August 14, 2020

Edited 12/30/20

How to Save Money on Homeowners Insurance

Learn why having homeowners insurance is a must and the ways you can save hundreds of dollars every year on yours.

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If you own your home, having appropriate insurance coverage is a must. It can help you pay to repair damage to your home and its contents. If you have a mortgage, your lender will likely require you to purchase homeowner’s insurance as a condition of your loan. Also, if you own your home free and clear, having adequate coverage can help protect your finances by minimizing the amount you have to pay for damages out-of-pocket.

Homeowners insurance typically provides six main types of coverage: 

  • Structure. Covers repairs to your home.
  • Other structures. Covers damage to other structures on your property, such as a shed.
  • Contents. Covers damage to or theft of your belongings.
  • Loss of use. Pays for living expenses if you’re unable to stay in your home while it’s being repaired.
  • Liability. Provides coverage if someone files a lawsuit against you for injuring them or damaging their property.  
  • Medical payments. Pays the medical bills of someone who’s injured on your property.

Factors that Influence Homeowners Insurance Premiums

The average cost for the most common type of homeowners insurance in the United States is $1,211, according to the National Association of Insurance Commissioners (NAIC). But your actual rate could be much higher or lower because insurance premiums vary based on a variety of factors. 

Insurance companies use 30-50 rating factors to determine premiums, according to Tom Y., Chartered Property Casualty Underwriter (CPCU), president of an insurance company. Some of the factors that have the biggest impact on your premium include: 

  • Where you live. If you live in an area that’s prone to natural disasters, you’ll pay more than someone who lives in a place where they’re less likely to experience damage to their home. But keep in mind that some disasters such as floods and earthquakes aren’t covered by a basic homeowners policy. Depending on your exposure, you may want to purchase additional coverage.
  • Cost to rebuild. The more it costs to rebuild your home, the higher your premium will be. Be careful not to confuse rebuilding costs with how much your home cost when you bought it. When you buy or sell a home, the cost of the land is included in the sale price. If you need to rebuild your home, you don’t have to pay for the land. 
  • Distance to a fire hydrant/station. “Insurance companies like to see a home within 1,000 feet to a [fire] hydrant and five miles to a fire station,” says Tom. If you’re farther away than that, you’ll probably pay more.
  • Claims history. If you’ve previously filed a homeowners insurance claim, you represent a greater risk to the insurer and your premium will typically be higher than someone who’s never filed a claim.
  • Age of your home. In general, older homes cost more to insure than newer homes. However, updated HVAC, plumbing and electrical systems may help minimize the additional cost.

Ways to Save on Homeowners Insurance

Once you buy a home, you don’t have control over many of the factors insurance companies use to determine premiums. But that doesn’t mean there aren’t things you can do to reduce the cost of your homeowners insurance. Here are seven tips to help you save money.

  • Shop around. You may be able to save hundreds or even thousands of dollars by getting quotes from multiple insurance companies. You can save time by working with an independent insurance agent who can provide quotes from multiple insurers. Or you can check out an insurance comparison website like Matic, which not only makes it easy to compare quotes and coverage from multiple carriers but also handles the paperwork and helps you manage your new policy for the first 60 days.
  • Improve your credit. In many states, insurance companies use credit-based insurance scores when calculating premiums. If you have bad credit, you may be charged more than someone with good credit.
  • Increase your deductible. Your deductible is the amount you must pay before your insurance company will begin paying for covered losses. You can usually save money on your premium by opting for a higher deductible. Just make sure you can afford to pay for any losses up to that amount before you increase your deductible.
  • Bundle your policies. Many insurance companies offer discounts when you purchase home and auto policies together.
  • Review coverage limits and the value of your belongings. It’s important to make sure you have enough coverage in case you need to file a claim. So, if you’ve recently bought some big-ticket items or made upgrades to your living space, it’s essential that your policy limits reflect that. But you also don’t want to spend money for coverage you don’t need. Thus, if you’ve recently offloaded expensive items that you no longer need coverage for, it’s worth a discussion with your insurance agent to see if it makes sense to reduce some of your policy limits.
  • Take advantage of technology. Some insurance companies offer discounts for central station burglary and fire alarm reporting. You may also be able to get a discount if you have smart home water protection like what Kangaroo offers. Plus, if you install technology that protects your home, you can minimize damage because you’ll receive a notification as soon as there’s a problem.
  • Ask about discounts. Discounts vary from carrier to carrier, so ask about what discounts are available and whether you qualify. Just make sure you’re not giving up coverage you need for a lower premium, warns Tom. “The most important thing I see is people give up valuable coverage for the discounts. And then they wonder why something isn’t covered when they file a claim,” he says. 

Save on Homeowner’s Insurance

Compare quotes from top-rated carriers

Matic helps customers save an average of $385 per year.

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Kangaroo sends alerts straight to your phone from who’s ringing your doorbell to detecting water leaks.

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How Much Can You Save?

Your exact premium will be based on the rating factors your insurance company uses to price policies. But let’s look at how much you could save if you qualified for four common homeowners insurance discounts if your current premium is $2,000 with no discounts.

  • Home and auto bundling: 10-15% or $200-$300
  • Increasing your deductible: $20-$100 
  • Central reporting fire and burglar alarm: up to 10% or up to $200
  • Smart water protection: up to 15% or up to $300

That’s up to $900 you could save in a single year. Within a few years, you could save thousands.

Once you have your coverage in place, don’t forget to review it every year to ensure it’s still adequate. Remember, different insurers have different rating criteria and discounts, so it’s important to shop around and compare offers from multiple carriers to make sure you’re getting the best deal.

“The most important thing anybody can do is have a frank discussion with their insurance agent. A diligent agent will walk you through the insurance application process, and they should be walking you through available discounts,” Tom said.