5 Ways to Reduce Your Homeowners Insurance Policy Premium
Contractors do not need to be experts when dealing with homeowner insurance claims. In fact, most states do not allow for the contractor to speak with the insurance carrier or to act on behalf of the insured. With that said, it’s important for contractors to understand and help a homeowner during and after an insurance claim. A contractor could assist a homeowner in empowering them to make their own decisions on how to reduce their annual premiums without removing or decreasing benefits to reduce premium cost. Below are the top 5 ways to reduce your homeowners insurance policy premium.
- Increase Deductible – In the previous post, I mentioned that a business owner can reduce his own insurance cost by increasing the deductible. Well, guess what: the same holds true for homeowners. If a homeowner wants to increase his deductible because he or she believes they will not have a significant loss, they will reduce the insurance carrier’s risk and the premium will reflect that change in risk. Obviously, for the homeowner they are increasing their own risk, but it will help in reducing the premium.
- New Roof – Did you know in some parts of the country, getting a new roof can actually reduce your insurance premium? A newer roof is less of a risk for an insurance claim in large parts of the country. Older roofs carry a higher risk associated with them (easier to leak, easier to lose shingles, easier to cause inside and outside damage to the home when a storm hits). Make sure the homeowner contacts their own insurance carrier, because different carriers have different philosophies. But for the most part, receiving a new roof will lower a homeowner’s insurance premium.
- Impact-Resistant Roof – Most, if not all, states in the hail belt of our country receive reductions in insurance premiums when they include an impact-resistant roof product (GAF offers Timberline® ArmorShield™ II and Grand Sequoia® ArmorShield™ Shingles). Impact-resistant roofing materials have shown to handle hail better than non-impact materials. The one item to be careful with is an endorsement that frequently accompanies an impact-resistant discount called “Cosmetic Damage Exclusion.” At its basic level, this means that as long as the roof doesn’t leak, it will not be repaired or replaced. This could cause an issue with performance over time, and visually it may not look attractive for a potential homebuyer. Impact-resistant materials will reduce the premium, but ensure the homeowner understands and accepts the potential change in coverage with a cosmetic damage exclusion.
- Switch Replacement Cost Value (RCV) Policy to Actual Cash Value (ACV) Policy – I would not necessarily promote ACV policies because the reimbursement amount does not include the amount of depreciation; however, these policies will save the homeowner about 10-20% in premium. An ACV policy covers the home for the insured property for the “market value” of the item. The total amount of reimbursement will remove depreciation (which is normally calculated around 4% per year), therefore the older the item, the less the amount of financial compensation the insured will receive. Typically, the maximum amount an item can be depreciated is 50%. Again, I do not recommend switching a policy to an ACV from RCV, but the annual cost of the insurance policy will reduce significantly.
- Shop Around and Bundle Policies – “The more you bundle, the more you save!” That fact is true; typically, it costs less if all the insured’s policies are under one provider. The reason is twofold: one, in terms of the cost per policy from a carrier, that expense is reduced; they are now able to spread the administration cost over multiple policies, which reduces the cost to the policyholder. Two, the insurance carrier has more insurance loss history from the homeowner and can accurately rate the policy with more information. In the majority of cases, having more information will reduce insurance payments because most people do not file insurance claims regularly. When a person bundles their insurance risk with one company, it does become somewhat more difficult to shop around. Still, that should not stop a homeowner from shopping their insurance policy for the best rate. Just make sure the benefits remain the same. Insurance companies want your business, so they may leave off a benefit or two to make it more financially attractive for you to transfer. Ask a lot of questions when shopping insurance policies and make sure you are properly covered.
As a contractor, the minimum responsibility is to handle the installation of material to a home. Yet, if you can repair a home AND educate the homeowner on how to save money on their insurance policy, I guarantee they will appreciate your additional time and effort. Don’t be just their contractor; be their advisor.