LETTERS From CAMP Rehoboth |
CAMP Money |
by Alex Yearley |
How to Minimize the Increasing Cost of Homeowner's Insurance
As many homeowners are learning, the cost of insuring their homes is going up. In some places homeowner's insurance is getting tough to find at all. Because your home is usually one of your largest investments, you do not want to underinsure in order to offset rising premiums. There are other ways to minimize the costs. How much premiums are going up varies widely from state to state, city to city and insurer to insurer. The increases lately have commonly been in the 10 to 20 percent range. In some cases premiums have doubled or tripled this year. Factors affecting rates include rising construction and repair costs, major weather-related losses, household mold, increasing use of "credit scoring" in setting premiums, and increased frequency of claims by homeowners. Even the declining stock market has an effect. During the bull market of the late 1990s insurance companies could afford to offer homeowner's insurance as a loss leader to acquire more profitable life and auto policies. No longer. Here are some suggestions to contain the increases while maintaining adequate coverage. First, be sure you have the right coveragenot too much or too little. Many financial planners recommend taking out a guaranteed replacement cost policy. The insurer will pay for the cost of fully replacing the property even if its cost exceeds the policy's stated value of the home. Good coverage, but some companies are no longer offering that rider. Instead they are capping payouts at a fixed percentage above the stated value such as 125%. Check your policy to see if you are properly covered. Over-insuring can also increase your costs. Are you covering assets no longer owned such as jewelry or fur coats? Once you have selected the appropriate type and level of coverage for your home, you can start to whittle down the premium. One of the biggest savings is by taking out a larger deductible. This is the amount you pay out of pocket before the insurance starts paying. If you currently have a $250 deductible, consider raising it to $1000. You will be rewarded by an up to 25% reduction in premium. Stash the savings in an emergency fund so you have the cash to pay the deductible should the need arise. Another way to control cost is to control claims. Some insurers are beginning to raise premiums or drop coverage altogether for homeowners who file as few as two or three claims even if there are minor and legitimate in as few as three or four years. This has angered consumers, but it appears to be a growing fact of homeownership. Try to use your insurance only for major claims and self-insure the rest. Ask about discounts. Insurers give all sorts of discounts including the use of smoke and burglar alarms, nonsmoking occupants, senior discounts (seniors are home more), the use of fire-resistant roofing materials and storm shutters, modernized plumbing and electrical, or just being a long-time policy holder with the same carrier. Insurance companies often give discounts of 5 to 15 percent if you buy additional types of insurance with them, such as auto coverage and liability. Shop around. You can save hundreds of dollars a year. Do not, however, always go with the cheapest deal. Be certain that the insurer is financially sound and has a good claims paying record. Finally look at group coverage through your employer, or professional and alumni organizations. This column, produced by the Financial Planning Association, is provided by Alexander G. Yearley, CFP, a local member in good standing of the FPA. Mr Yearley runs Community Pride Financial Advisors, 39 Baltimore Ave., Rehoboth Beach DE and offers securities through Cambridge Investment Research, Inc., Member NASD and SIPC. |
LETTERS From CAMP Rehoboth, Vol. 13, No. 6, May 30, 2003 |