We all hate insurance, until we need it.
We pay and pay on those premiums, and sometimes we feel insurance poor. But some insurance you simply can’t afford to go without. Homeowners insurance is no exception.
If you own a home, hopefully you have a fully funded emergency fund of three to six months of expenses. If so, then you should look into raising the deductible on your homeowners insurance because that will lower your premium.
How do you decide if raising the deductible makes sense for you? Examine your risk in making the change. Let’s say you’re going from a $250 to a $1,000 deductible. That’s a $750 difference. By raising your premium, you risk having to pay $750 more out of pocket if something happens to your home.
If raising the premium saves you $30 a year, then it will take you 25 years without a claim to break even. But if you save $250 a year in premiums, you only have to go three years without a claim to break even—and that’s a good bet. Look at how much extra risk you are taking. Are you getting enough savings to justify incurring the risk?
Liability on your homeowners insurance is one of the best buys in the business. It doesn’t cost much, so you should carry a $500,000 minimum. No one sues for $250,000, so have at least $500,000 in liability. Then you are transferring the risk, which makes liability a good buy.
Check your homeowner’s policy to make sure you have guaranteed replacement cost insurance. Several years ago, a lot of the major insurance companies quit offering guaranteed replacement cost insurance—a policy in which your home is replaced no matter what it costs.
The problem was that companies weren’t coming back and raising the premiums, even though the cost of the house increased. But they still had to replace the home if something happened to it.
Now many companies have put a dollar amount on the policy, saying your coverage is for that amount plus a maximum of 25%. So let’s say you bought a $100,000 home with $100,000 worth of coverage. If, in a couple of years, the house’s worth increases to $175,000—but you never changed your policy—then you’ll only have $125,000 worth of coverage. If something happened to your home, then you would be $50,000 in the hole.
Remember, the reason you have homeowners insurance is to transfer risk. Make sure your home is totally covered just in case something happens.
If you have any questions about the coverage you have or the coverage you need, talk with one of Dave’s insurance Endorsed Local Providers. Dave’s ELPs are insurance professionals who will recommend the same coverage Dave does. Your ELP is also an independent insurance agent, which means he’ll work for you, not the insurance company, to find coverage to meet your needs and budget. Contact your ELP today!
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