How to Save Money on Your Homeowners Insurance for Disasters

04/14/2023

While adequate insurance coverage is essential to disaster recovery, premiums can present a significant expense for homeowners. Premiums may increase over time with inflation, increased costs of construction, or other factors; however, it is possible to reduce potential costs.

In addition to the premium, you’ll need to account for the deductible — the amount of your claim that you pay before any payment is made by your insurance company. The larger your deductible is, the lower your premium will be. However, the larger the deductible, the more out-of-pocket payment you will be responsible for when a loss occurs.

Dollar deductibles: A dollar deductible is the dollar value the insured must pay before the insurance company will pay the remainder of the claim. For example, with a $500 standard deductible, the policyholder must pay the first $500 out of pocket. Some insurers offer policies with higher dollar deductibles for hurricane and earthquake damage. The higher the deductible for a given policy, the lower the premium. This is because the insured is bearing more of the risk.

Percentage deductibles: Percentage deductibles are calculated based on the home’s insured value. For example, if a house is insured for $100,000 and has a 2% deductible, the first $2,000 (or 2% of the insurance value of $100,000) of a claim must be paid by the policyholder. In many states, policyholders have the option of paying a higher premium if they prefer a traditional dollar deductible instead of a percentage deductible or if they prefer to have a lower percentage deductible. Percentage deductibles are sometimes mandatory. It is important to remember that the dollar value of a percentage deductible will change as the insured value changes.

Here are some options for saving money on your homeowners insurance.

Adjust the Deductible

A policy may have different types and amounts of deductibles based on the peril. Many insurers offer homeowners insurance policies with percentage deductibles for windstorm damage instead of the traditional dollar value deductibles used for other types of claims, such as fire and theft.

One of the more common percentage deductibles is the hurricane percentage deductible that applies to damage solely from hurricanes. For example, a policyholder may have a $1,000 deductible for fire losses, but a 2% deductible for hurricane losses, making the hurricane percentage deductible a significant part of the policy. An earthquake policy with an additional third deductible could differ from all other deductibles for the insured property, as well.

Qualify for Premium Discounts

Premium discounts vary widely by state and company. Secure price quotes from more than one source before choosing a policy, and use the list below to request potential discounts. This list is not exhaustive, so you may qualify for additional discounts.

• Discounts may be offered when purchasing home and auto insurance from the same insurer.
• Discounts are typically available for homes with burglar alarms, dead-bolt locks, fire sprinklers, and smoke alarms.
• Discounts are sometimes available for homes with water detection systems or other telematic devices that transmit home statuses.
• Discounts may be available for policyholders who are at least 55 years old and retired. Discounts are often available for certain professionals, alumni, and business groups.
• Long-time customers may be offered insurance discounts.
• Homes constructed in communities using current, model building codes will typically receive automatic credits on insurance premiums. The community’s Building Code Effectiveness Schedule (BCEGS) rating will indicate the favorability of the code. Lower BCEGS ratings of 1 to 4 are ideal.
• Homes built or retrofitted with disaster-resistant features for earthquakes, floods, hail, hurricanes, wildfires, or windstorms may be eligible for credits or discounts. Examples of qualifying features include braced cripple walls in seismic zones, elevated foundations for flood protection, hurricane shutters, impact-resistant roof coverings, sealed roof decks, superior roof connections, impact- and wind-resistant garage and entry doors, and more.

More Resources

• FLASH and The Actuarial Foundation. If Disaster Strikes Will You Be Covered? A Homeowner’s Insurance Guide to Natural Disasters.