Don't settle too fast on insurance for home

Among experts' tips: Cover cost of replacing, and double deductibles

September 11, 2005|By KNIGHT RIDDER/TRIBUNE

HACKENSACK, N.J. - What do you like best about your house - the sunny kitchen, the shiny wood floors or the cozy bedrooms?

Or is it the fact that your house makes up a big part - maybe the biggest part - of your net worth?

Either way, you have to protect what you have, using homeowners insurance.

While many homeowners believe that all insurance companies charge the same, that's an expensive mistake.

"You can go from one company to another and pay twice as much," said Hunter.

Don't just call an agent and expect him to do the shopping for you, he advised, because agents don't represent all companies and might not get you the best deal.

Here are some tips for getting the best deal:

Insure for "replacement cost" rather than "actual cash value." After all, if your belongings are destroyed, do you want the insurance company to send you enough to buy a new couch - or do you want a $50 check for the actual value of your 11-year-old couch?

Make sure you are covered for at least 80 percent of the cost of replacing your house. If you're not, it could hurt you even if your house does not need to be completely replaced.

Let's say your home would cost $200,000 to replace and you're insured for only $100,000, half the replacement cost. If you have a $10,000 loss, you would get only half that amount, or $5,000.

Knowing how much it would cost to replace your house is not always easy. For example, you might know how much you paid for your house and how much you could probably sell it for, but you probably don't have a clue how much it would cost to rebuild if it burned down.

The New Jersey Department of Banking and Insurance and the Insurance Council of New Jersey recommend that homeowners in this situation should consult their insurer, who will be able to estimate the cost of rebuilding based on the size and location of the house.

Think twice before calling your insurance company with small claims for minor home damage. There have been reports of homeowners facing much higher premiums after putting in only two claims. So if it's a loss you can handle, take care of it yourself.

In that vein, consider a higher deductible.

"If you're not going to file a small claim, it's no use paying a premium to be covered for an amount you wouldn't file for," said J. Robert Hunter, insurance director for the Consumer Federation of America.

"Every dollar you give to an insurance company, on average you only get back 60 cents," Hunter said. The rest goes to the insurance company's profit and overhead. So if you can self-insure for smaller losses, you should.

About 20 years ago, Hunter raised the deductibles on both his car and home policies, and he banked the money he saved on premiums in a special account. Over the years, he used that account to pay for about $2,000 to $3,000 in losses, mostly auto-related. He still has $4,000 - money that the insurance company could have had.

"Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent," according to the Insurance Information Institute, an industry group.

Make sure your home policy includes enough liability insurance, in case someone is injured on your property.

Consider buying your home and auto policies from the same insurer. Some companies will take 5 percent to 15 percent off your premium if you buy two or more policies from them.

You can get discounts if you install smoke detectors, deadbolt locks or burglar alarms.

Keep your credit history clean. Insurance companies are increasingly checking credit reports to set their rates.

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