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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.”