Offset the Rising Cost of Your Homeowners Insurance

Anybody notice your homeowners insurance premiums increasing a little over the past few years? If you've been paying attention to the last few years of your premiums, you're probably thinking that the insurance companies got together with NASA and launched your premiums into orbit on one of the last shuttle missions.

Yes it's true, homeowners insurance rates have drastically increased over the past five to 10 years. Many have started questioning the reason behind this, assuming it's just greedy corporations trying to increase profit margins. Contrary to the pessimistic view of some, the increases are actually necessary. Check this out for size...

- In 2009, insurance companies in Minnesota paid out nearly $1.50 in homeowners claims for every $1.00 they collected in premiums (also known as a 150-percent loss ratio).

- Major catasprophic events like Hurricane Katrina and the Joplin tornado have losses in the billions of dollars.

- Some companies had major problems with their investments during the 2008-09 financial turmoil. Some companies needed to raise premiums just to make sure they had enough funds on hand to pay claims. 

It's hard to control the weather, which is why it's hard to control homeowners insurance premiums. The premiums charged for the coming year are actually based on past events. Each company has its own pricing scheme, but it typically weighs claims and weather history over the last 10 to 20 years. 

Here are some tips on saving money on your homeowners policy...

1a.  Adjust your deductible. Five to 10 years ago, many consumers had $250 or $500 deductibles. Today, the lowest you will most likely find is $1,000. Keep in mind, a $1,000 deductible option is the most expensive! It's best to look for something in the $2,000 to $3,000 range. 

1b. Select a proportional deductible. This is a new kind of deductible that insurance companies are starting to adopt. Instead of keeping it a flat $1,000, the consumer has the option to make their deductible a percentage of their total dwelling coverage. Here's an example: Your house is covered for $300,000, and you have a 1- or 2-percent deductible. That 1 or 2 percent of $300,000 is $1,500, so your deductible is $1,500. Some companies provide premium discount incentives to select a proportional deductible.

2. Review the amount of coverage on your home. Every year, pricing information for building materials is collected and analyzed to see how much inflation occurred in the industry. In plain English, how much more expensive are shingles and 2-by-4s this year than they were last year? Many companies have "inflation coverage" on their policies, and increase your coverages based on the amount of inflation in the cost of building materials. Over a five- to 10-year period of inflation-based coverage increases, it is very possible your home could become "overinsured." Double check to make sure your'e not paying for more coverage than you need.

3. CLAIMS. This is a hot-button issue with most people. Ever heard someone say "I've paid into this insurance thing for the last 10 years, it's about time it pays me back!" What about "I have this insurance stuff for a reason, so I might as well keep using it." Truth is, claims are the main reason for all these pricing increases. Disclaimer: If your roof gets torn off, your house burns down, etc., we WANT to help get everything put back together. That's why we do this! Insurance is there to take care of the "majors," but there are huge number of people out there expecting their insurance to pay for the "minors" as well. Paying for the minors (i.e. a storm door blowing off the hinges because the wind caught it) has driven the policy premiums through the roof.

**Many companies have claim-free discounts available for clients who are claim free for the past three years. These can build up to larger percentages over time.

4. Review your policy with your agent. They know your insurance company better than anyone else, and will be keeping your best interest in mind.