Not every one is going to get hit with big rate increases, but if you do get hit, there are ways for you to minimize the overall impact to your budget and still keep your coverage. But before we get into that, lets try to figure out what is happening here.
Are the Rate Increases Caused by Natural Disasters?
To a certain degree, yes. I have to believe that some of the increase can be traced to the catastrophic losses of 9/11 Attack on the World Trade Center. It is estimated that the total losses from the tragedy will go over $70 Billion Dollars, that is $70,000,000,000. There is no question that the money necessary to pay for the destruction and losses will come from almost every insurance company in one way or another. But the premium increases forhome insurance had started long before that fateful day.
Insurance Premiums on Homeowner Policies Have Gone Up Less Than 2% Per Year the Past 10 Years.
I am sure you are saying, How can that be, it seems that my rates have gone up every year? You are partially right. The total premium may have gone up, but the amount of coverage has also gone up to keep pace with the increasing cost of construction and materials used to rebuild houses. Inflation has continued to increase and push the cost of replacing homes and property higher year after year. Your policy adjusts the coverage on your home each year in an attempt to make sure you have enough coverage in the event of a catastrophic loss.
Insurance companies invest their money just like everyone else. During the 1990's they made money on their investments just like everyone else. In fact, many home insurance companies were willing to write insurance at a loss because they knew they could make it up on investment income.
For most of the 1990's, insurance companies were able to keep your premiums lower than they would have been because investment income they earned more than offset the losses they paid out. As consumers, we really shouldn't have a problem with that, part of our premium is offset by the insurance companies investments, resulting in lower premiums.
All of a sudden, the investment income fell off, but the losses didn't. Insurance companies were now faced with the prospect of mounting losses if they kept the rates at the low level. One of several options was to increase premiums across the board and increase they have.
Clients that do not turn in claims make insurance companies lots of money and should be charged lower rates.
Sounds pretty simple doesn't it? Unfortunately, the rule works the other way, too. Insurance companies are going out of their way to give clients without losses discounts and premium credits to reward them for not having a claim.
If you have a claim or two, you can expect to pay a higher premium for a few years. We know no one plans to have a claim, in fact it's a real pain to go through the process, but it's no different than auto rates going up if there is an accident.
One other problem is the size of losses have gone out of sight! We have seen the average size of closed claims in our office go from $2,350 in 1993 to over $6,425 in 2002. The fact is that it just costs more money to make repairs to houses today than it used to.
Big changes are happening in the insurance market.
Deductibles Can Save You BIG Money!
Back in the days when I first started in the business, homes were insured for $35,000 and the policies had a $50 deductible. In the late 1970 the value of homes headed towards $75,000 and the deductibles went to $100. By the end of the 1980's a $250 deductible was standard on almost all policies written for homes valued over $100,000. Today, with the values of many homes costing more than $175,000 many of our clients are using $500 to $1,000 deductibles to keep the cost of their insurance down.
If insurance companies want to reduce your premium for not turning in claims, you might as well save even more money by increasing your deductible. While you wont save enough to make up the deductible in one year, you will be surprised how much you do save over a few years.
How Much Homeowners Coverage Should I Have?
So how much insurance should you have? Basically, unless you want to pay some of the costs yourself, you should insure your home for what it would cost to rebuild it if your residence were destroyed.
How do you find this out? In the home construction world, building costs are calculated on a square foot basis. We can calculate the estimated replacement cost for your home. Give us a call and we will be glad to update our records and send you a copy for your review.
Your possessions are also insured on a replacement cost or actual cash value basis. Again, unless otherwise specified, the coverage in your policy is actual cash value.
Homeowners policies also have limits on coverage for such items as jewelry, fine art or collectibles.
For example, the standard policy will provide a maximum of $1,000 coverage for your jewelry if it is stolen. If you have lots of jewelry, fine art or collectibles, you should consider purchasing a special personal property endorsement or floater that provides the coverage you need.
8 Ways to Save Money on Your Insurance Year After Year
Now that we have given you the bad news, here are 8 ways you can pay less for your texas home insurance.
In many cases, you can get the same level of coverage for fewer dollars.
Take advantage of multiple policy discounts!
Do you have a Houston auto insurance policy?
Texas home insurance policies.
If so, is it with the same insurance company that provides your homeowners insurance?
Many insurance companies offer multi-policy discounts.
Usually, these discounts are at least 10% and at the most 27%.
some insurers apply the discounts to both the auto and the homeowners or any other Texas property insurance policy.
Raise Your Deductible
The deductible is the amount you pay before insurance kicks in if you have a claim.
For example, if you have a $250 deductible and you file a claim for $1,000 in damage to your home, you pay the first $250 and your insurer pays the balance, $750.
The higher the deductible you choose, the more you pay out of your pocket.
However, the higher the deductible, the less you have to pay for your policy.
Depending on the insurance company, you can save between 12% and 37% if you change a deductible of $500 to $5,000.
Newer Homes Are Rated Better
Insurance companies really like newer homes.
Recently built homes equals lower premium because there is less likelyhood something will go wrong with the electrical, heating and plumbing systems.
In addition, the structure itself is in better shape.
Insurers offer discounts of as much as 8% to 15% if your residence is new.
Insure the replacement cost of the house itself not the land.
There have been times when mortgage companies want us to increase the amount of insurance to be equal to the mortgage on the property.
You want to insure the rebuilding cost of the house and without including the value of the land in the in the total replacement cost.
Don't insure more than you own.
If you have made a major purchase, you will want to increase your limits of coverage, but what if you sell something? You don't need as much coverage.
Pay particular attention to items that are covered by endorsements or added floaters to your policy, items such as jewelry and computer equipment.
Do not leave your house unprotected.
Smoke detectors, burglar alarms and deadbolt locks are usually worth discounts of at least 2%.
You can get even bigger discounts, 8% to 10%, if you install a sophisticated sprinkler system or an alarm system that rings at the police station or a security company.
Before you install one, check with your insurer to find out what type of system qualifies for a discount and how much you would save on your premium if you installed the system.
If your dog bites, beware of lawsuits.
If you have a dog or dogs, particularly if it's a more vicious breed, you will pay more for Texas liability insurance coverage.
More and more dog bite claims are being presented, which has some insurers not exactly eager to provide coverage to homeowners who have.
for example, Rottweilers, Pit Bulls and Dobermans.
If you are considering getting a dog, keep this in mind: If you own dogs of certain breeds, your premium will probably go up.
Your insurer could decide to cancel or non-renew your policy.
For that matter, if your dog is likely to bite someone - of any breed - you are risking higher premiums and cancellation
Keep Your Credit Score in Top Condition
Insurance Companies are relying more and more on credit scoring to determine insurance premiums.
They have found that people with low credit scores have almost three times the losses than people with top credit histories.
Get rid of unused credit cards and pay your bills on time. It will pay off in the long run.
I wont kid you. There is more to this insurance game than saving money. In fact, while it's nice to lower your insurance costs, it's probably even more important to make sure you, your loved ones and your assets are covered adequately. It's not a pleasant thought, but insurance is about worst-case scenarios. It's also about peace of mind, knowing that you have the worst-case scenarios covered.
Do you have Texas insurance questions?
We are here to help you manage your insurance protection. We promise that we will be honest with you and try to get you the best insurance coverage for your dollar. We cant always have the cheapest rates around, but I can guarantee you that we will do everything possible to make sure that you are getting all the discounts you deserve and have your insurance with one of the top insurance companies doing business today.