When you're ready to purchase a home, you'll no doubt discover it's more costly than just plunking down a healthy down payment, paying closing costs, inspections, and moving expenses. The list goes on and on; though, as time goes by, you'll have made a wise financial investment in your future. What's more, you'll have the peace of mind knowing your monthly payment will remain the same.
One thing that's wrapped-up in the deal is homeowner’s insurance, which differs from private mortgage insurance. Banks require borrowers to have private mortgage insurance or PMI to protect their investment. Should you default on the mortgage loan, the bank will recover. In short, PMI protects the lender, not the borrower. However, home insurance does protect you, but of course, it comes with a cost.
The trouble with these particular policies is what they actually cover and at what price. For instance, here in the Sunshine State, a home policy doesn't cover flooding. That's why somewhere along the house hunt journey you're likely to be advised to look into purchasing a flood policy. Additionally, you'll probably hear it's a good idea to get a wind mitigation inspection done on your property.
Understanding What's Insured and Why
Aside from the contractual language being very difficult to understand, many homeowners needlessly purchase a policy that's not a good financial fit. Many policies come stuffed with all kinds of added-on line items, some of which, you will probably never need. Before you even start to shop around and compare plans, get in-the-know about what is typically covered and why.
"When you're hunting for a house, the cost of home insurance is probably at the bottom of your shopping list. But you should probably move it up a few notches. Sue and Joe Davis learned this when they went house hunting recently. While Sue loves old Victorian homes, he loves new, freshly built ones. Obviously, maintenance and renovations are cheaper on the latter, but the Davis' Realtor told them that buying a newer home could also save them money on home insurance." --AOL Real Estate
When you first get a policy, you're going to be asked to document all your valuables. Most people simply honor the request and do so because they are worried about a valuable or even a sentimental possession possibly being destroyed. Those extra costs linger as long as they are appended to the policy, even if they depreciate. The majority of plans come "out-of-the-box" with a lot of things you simply don't need. A good insurance agent will work with you to help you get a policy that's tailored to your home.
How do I Lower My Homeowner's Insurance?
If you want to know where you can save money on your home policy, these are the places to look:
- Wind mitigation inspection. By having a wind mitigation inspection done, you'll be able to save money on your policy. Because of the location of where we live, in a sub-tropical climate, insurance companies by the dozens went belly-up when all those storms hit, like Ivan and Charley in 2004; and then, Katrina and Rita in 2005. The result was higher premiums.
- Your family pets. You might want to adopt a lovable little puppy with a sweet face that isn't necessarily on your list of dangerous dogs. Unfortunately, that's not the way insurance companies see it. You'd be surprised by the breeds which make their lists for precarious pooch personalities. Be careful when picking out a four legged best friend when buying a home.
- Plumbing and electrical systems. Simply put, the older these are, the more you'll pay. Insurers aren't keen on possible water damage because it not only costs money to undo said damage, it can lead to mold. That's quite difficult to remediate (read: expensive), so age is definitely a factor. That goes double for the electrical system. Should it be more than 25 years old, it's going to present a problem.
- Floaters on your policy. Remember all those items you took the time to inventory and report to protect your valuable possessions? Well, they will go on costing you so long as you allow them to do so. If you listed something that's depreciated, consider removing it as a floater or an addition to your policy.
- Your deductible. Raising your deductible is another way to save on your premium payments. Consider building-up an emergency fund and then hiking your deductible in order to lower your insurance costs.
- Protect your home. Installing a home security system will help to lower what you pay. In addition, if you do things like install storm shutters and other things which protect your house, you'll save more.