Are you overpaying for homeowner's insurance?
By Melissa Wirkus
If you own a home
and have a mortgage in place to finance
your home, then you have homeowners insurance.
The thing with home owners insurance is
that many people do not file claims on
small things that happen to their house,
because they are afraid that there rates
will go up or they could get dropped from
their carrier.
What many people do not realize is that
they could save a lot of money on their
homeowners
insurance by making a few slight adjustments
and analyzing their claim filing behavior
and history.
An October 4, 2006 article by Andrea Coombes
of MarketWatch.com, “Blind Spot:
Homeowners’ claims history shows
they often overpay on insurance; study”
looks into how many homeowners could save
a lot of money by switching some things
around. “Some homeowners could be
saving a chunk of change every month on
their home insurance if they only paid
more attention to their reluctance to
file claims, according to a new study
from MIT's Sloan School of Management.”
“Many homeowners don't file insurance
claims for relatively minor damage to
their homes, even if the cost of the repair
exceeds their deductible, says Michael
Braun, one of four authors of the report
and assistant professor of marketing at
MIT Sloan.”
Many people are reluctant to file a claim
for a variety of reasons, but most just
don’t think it is worth the trouble,
and often times they are right, especially
if it is something relatively small, where
the deductible almost costs as much as
just making the repair yourself.
So some experts suggest switching to a
higher deductible to lower your premium
costs. This could save a great deal of
money in the long run, if you hardly ever
file a claim and can handle paying the
higher deductible should something happen
to your home.
“But, generally, going from a $500
to a $1,000 deductible will save you about
10% to 15% in premium costs, said Bruce
Maynard, senior assistant vice president
at Amica Mutual Insurance Co., in Lincoln,
R.I.”
“If you can stomach an even higher
deductible, you'll see greater savings,
as much as 30% for going from a $500 to
$2,500 and as much a 40% to 50% for jumping
to a $5,000 deductible, Maynard said,
noting that these savings would apply
only to the basic policy, not to premiums
for added coverage such as for valuable
jewelry.”
Homeowners just need to analyze what kind
of unexpected expenses they can handle
in a given month. If they could easily
handle having to pay a $1,000 deductible
at any time than it may make sense to
switch from a $400 deductible to a $1,000
to cut down on monthly premium costs.
“The question consumers need to
ask, Braun said, ‘is how big of
a loss does it need to be before I'm going
to file a claim? If the total amount of
the loss is greater than the next highest
deductible level that I could purchase,
then I should think really long and hard
about increasing my deductible,’
he said.”
“‘For those customers who
are able to absorb the loss of a higher
deductible, then it might make sense for
these customers to buy
a higher deductible policy and pay a lower
premium for it,’ Braun said.”
