5 Surprising Homeowners Insurance Facts and Savings Tips
Money Girl details 5 surprising facts about what affects homeowner insurance quotes, and reveals tips on how to save money, and how to prevent your premium from ballooning over time.
There’s no place like home, but owning one is a huge investment. In addition to the cost of a mortgage and property taxes, homeowners insurance can take a massive bite out of your budget.
No one likes to pay for homeowners insurance – until you need it. Fortunately, there are smart ways to get high-quality home insurance and still save money.
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In this episode, you’ll learn 5 surprising facts about what affects homeowner insurance quotes, as well as how to save money, and how to prevent your premium from ballooning over time.
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Who Needs Homeowners Insurance?
When you buy a home, lenders require you to have a minimum amount of homeowners insurance, in order to protect what they’re financing. You must be able to repair or replace the property if it gets damaged or destroyed by a covered event, such as fire, wind, or hail.
But in order to protect your own interests, you should have a comprehensive homeowners policy that goes above what a lender requires. For instance, every homeowner should have liability coverage to stay safe from a lawsuit, plus loss of use coverage, which pays for when you’re forced to move out while repairs are made due to a covered disaster.
However, unlike with auto insurance, there’s no law that says you have to purchase any amount of home insurance. So once your mortgage is paid off, you can drop coverage if you like – but I don’t recommend it.
See also: How to Buy a Home in 10 Steps, Part 1
When I began working as an insurance analyst and spokesperson, I got access to all kinds of interesting data. Here are 5 facts I’ve learned about homeowners insurance that may surprise you:
Fact #1: Credit is an Important Rating Factor
If you’re a regular Money Girl reader or podcast listener, you already know that your credit history reaches its tentacles far into your financial life. Not only does it play a role in things like the interest rate you pay for credit accounts, and whether you can rent an apartment, but it also affects your insurance premiums.
A 2014 insuranceQuotes.com study found that if you have fair or median credit, you pay 29% more on average nationwide for home insurance than someone with excellent credit. But if you have poor credit, your premium nearly doubles – and you’ll pay 91% more!
Only a few states currently prohibit insurers from using credit when setting home insurance rates. So in every state except California, Maryland, and Massachusetts, keeping your credit in tip-top shape will help you save a substantial amount of money on home insurance.
See also: Credit Score Survival Kit, a free tutorial to build excellent credit!
Fact #2: Making a Claim Affects Your Rate
Insurance is one of the only products you buy that you hope you’ll never have to use. Not only is repairing damage to your home a real hassle, but you may not realize that simply making an insurance claim can cause your rate to skyrocket for years!
Insurance companies have statistics showing that after making one home insurance claim, you’re more likely to make a second and third one. So the company typically adjusts the cost of your coverage to compensate for that future potential risk.
Depending on where you live and type of claim you make (such as property damage or liability), your annual premium could increase 9% on average nationwide after making just one claim. Texas is the only state that prohibits a rate hike after making just one home claim’ to see how your state stacks up, check out a national map.
To save money, carefully weigh whether making a claim is in your best financial interest over the long run – then only make one when it’s absolutely necessary.
Any prior owners’ insurance claims made over the previous 7 years can affect the homeowner insurance rate that you have to pay.
See also: How Making a Claim Affects Homeowners Insurance Rates (Video)
Fact #3: A Previous Owner’s Claims Can Affect Your Rate
One of the ways different insurers track your claims history is a little-known database called the Comprehensive Loss Underwriting Exchange (CLUE). It maintains all insurance claims you’ve made for your home and vehicle for up to 7 years.
What’s interesting about claims history on a home is that even any prior owners’ insurance claims made over the previous 7 years can affect the homeowner insurance rate that you have to pay. While that may seem unfair, an insurer views a property with multiple claims as a higher risk for having more claims in the future, and may charge you more based on that.
But what’s even more surprising to many is that simply talking to an insurance company or agent about specific damage to your home can result in higher rates. In most states, insurers can make a notation in your CLUE report if you simply inquire about a loss.
Insurers say that the fact that you inquired about a loss is an indication that a loss occurred, and that makes your property riskier. They can raise your rate at renewal even if you never filed a claim, or if you filed one that was denied.
So when speaking to your insurer, be clear about whether you’re making a formal claim for damage, or simply inquiring about whether a type of damage is covered by your policy.
You can view your auto and home CLUE reports at LexisNexis for free every 12 months. Just like with your credit report, you should review it carefully and dispute any errors right away.
Here’s a quick and dirty tip: When you’re buying a home, always request a copy of the CLUE report from the seller, so you can see what insurance claims have been made on the property in the past. Aside from insurers and lenders, only the property owner can access a home’s CLUE report, so you need to ask the owner to obtain a copy for you.
See also: How Your CLUE Report Affects Insurance Quotes (Video)
Fact #4: Some Dog Breeds are Blacklisted
Dog bites make up a third of all liability claims – and the average cost of a bite is $30,000.
If you love your dog as much as I love mine, you may be surprised to know that your furry friend could cause problems with your home insurance.
Since coverage typically includes liability for all members of your household, including your pets, insurers are particular about which dog breeds they’ll insure – especially since dog bites make up a third of all liability claims, and the average cost of one is $30,000.
Large, powerful breeds may be blacklisted altogether, or cause you to pay an inflated home insurance rate. Some breeds most commonly excluded from coverage include:
- Akita
- Alaskan Malamute
- Boxer
- Cane Corso
- Chow chow
- Doberman Pinscher
- German shepherd
- Great Dane
- Mastiff
- Pit Bull or Staffordshire Terrier
- Presa canario
- Rottweiler
- Siberian husky
- Wolf hybrids
If your dog is blacklisted, consider buying a separate, inexpensive umbrella liability policy. You could get a $1 million of coverage for less than about $300 per year.
See also: Dog Bites and Home Insurance Claims (Video)
Fact #5: Not Everything Is Covered
While a standard homeowners insurance policy gives you many protections – such as coverage for the structure of your home, your personal belongings, loss of use, and liability – it doesn’t cover everything.
Policies often state that for something to be covered, it must be “sudden and accidental.” That means if you’ve had a leaky faucet that caused damage over many months, it probably won’t be covered, because you neglected proper maintenance.
However, even if they are sudden, some natural disasters are never covered and require separate insurance, including floods from ground water, and earthquakes. Additionally, mold and sewer backups are perils that may not be covered, unless you add them to a standard home policy.
If you have a home-based business—with customers who come into your home, special equipment, or inventory—that typically isn’t covered, and requires a separate commercial insurance policy. You’ll also need a different type of policy if you turn your home into a rental or vacation property.
Finally, certain types of expensive personal belongings have coverage caps. For instance, jewelry, artwork, computer equipment, silverware, and firearms might only be protected for $5,000 or $10,000. You should raise the coverage amounts for any special items you own to make sure your home policy pays out enough in the event of a loss.
More Savings Tips
There are many factors that influence how much you have to pay for homeowners insurance, so always ask your insurer about potential discounts. Also consider increasing your out-of-pocket deductible (if you have enough emergency savings to cover it), because that will help reduce your annual premium.
Shopping around for quotes is the best way to make sure you aren’t overpaying for coverage. Use a site like insuranceQuotes, USInsurance, or ExactQuote to shop and compare free home insurance quotes.
More Money Resources
4 Major Disasters Homeowners and Renters Insurance Won’t Cover
Can Pay-As-You-Drive Insurance Save You Money?
Your Guide to Renters Insurance
Tips to Buy Life Insurance
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
