Homeowners Insurance: Balancing Deductibles and Premiums
When you are in the market for homeowners insurance, many options are available to choose between for the levels of coverage you will carry. Ensuring adequate levels of coverage is the key to responsible homeownership, but you must also make intelligent selections over what you will pay to your insurance company on a regular basis versus what you will pay whenever there is an occurrence in your home necessitating the use of your policy. Ensure that your deductibles and premiums are adequately balanced, and your pocketbook will benefit greatly!
A number of factors affect what you pay in homeowners insurance premiums including the cost of your home and personal property and the amount of your deductible.
Getting the Right Amount of Homeowners Insurance Coverage
When deciding how much coverage you need to protect your home, start by understanding your homeowners insurance policy and the different types of protection it provides. Then you can decide how much and what type of coverage you need.
Homeowners insurance covers damage to your home or other structures, such as your garage, in case of fire or storms. It also covers theft or destruction of your personal possessions, such as home furnishings. You may also have coverage to defend you against liability claims--if someone falls on your property or your dog bites a neighbor.
Homeowners Insurance Premiums
The amount you pay either monthly, quarterly, or annually is called your insurance premium. The exact amount of the premium depends on the coverage you select and the amount of your deductible. Premiums are paid directly to your insurance company or through a bank escrow account along with your monthly mortgage payment.
How Much Insurance Coverage Should You Have?
First, start by finding out what your property is worth and then select an appropriate amount of coverage. Even with the recent downturn in the real estate market, it may cost far more to repair or totally replace your property than when you bought it, especially if you have made renovations. One way to estimate your home's value is to find out what nearby, similar properties have recently sold for.
You should also take into account what it might cost to replace your personal property if it was stolen or destroyed. That old TV may only be worth a few dollars, but it would cost far more to buy a new one if it was stolen. Replacement value, rather than actual value, may be more costly, but it would allow you to replace what you've lost.
How Much Will Your Insurance Cost?
The dollar payout amount of your policy and whether you have a higher or lower deductible determines your premium payments. You may want to save some money by lowering the limits of your policy, but remember that if your property is damaged, the cost to repair or replace it could be more than you could pay out of pocket. This could leave you without a place to live. You may be eligible for premium discounts, such as having a home security system or insuring your automobile with the same insurance company. Also, paying annually or semi-annually rather than monthly can also save you some money.
Using Your Deductible to Save Money
A deductible is the amount of money you are willing to pay out of your own pocket before the insurance company makes any payment. Deductibles lessen the number of small claims and save the insurance company some money on larger claims. In turn you can save some money on your premiums if you increase your deductible amount. However, you need to determine how much cash you can come up if you have to pay a deductible before the insurance company kicks in its share. Depending on your financial circumstances, you may want to pay a little more on your premium and keep your deductible lower.
