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Should We Overpay For Homeowners Insurance?

Overpay for homeowners insurance?Question: We’re in the process of buying a home. The sale price is $225,000 but the insurance agent wants us to carry coverage for a property costing $285,000. Why do we need so much excess insurance — or do we?

Answer: When you buy a car the price you pay has a package cost but if you add up the expense of separately replacing the brakes, motor and seats you will come up with a much-larger number. The same is essentially true for real estate.

Property insurance is designed to protect homeowners against a variety of perils and the insurance company must be prepared to cover the cost if the entire house is lost. Such an event is unlikely, however you plainly want protection for a catastrophic event so how much is enough?

You want sufficient coverage to protect you in the event the entire house has to be replaced and you also want coverage and premiums appropriate to your area, the type of home you have as well as its age, construction, amenities, updates and upgrades.

You likely want to go back to your insurance broker and ask several questions:

No Coverage For Land

First, how much coverage do you really need? Part of the purchase price represents the cost of land but as a homeowner you’re not insuring land.

“The land under the house isn’t at risk from theft, windstorm, fire and other perils covered in a homeowners policy,” explains the Georgia Insurance Information Service, a trade association. “Therefore, the value of the land should not be included in deciding how much homeowners insurance to buy.”


Second, in some instances and especially with an older home you may be able to get a lower rate by having the home inspected to show that the roof, electric, plumbing and HVAC are all in good condition.

Homeowners Insurance: Higher Deductibles

Third, opt for a higher deductible and premiums will go down. Insurance companies like higher deductibles because it helps them avoid minor claims. Be careful though, a higher deduction means that in the case of an insurable event you’ll need more cash to cover costs. A good approach is to opt for a higher deduction and then take the equivalent of the annual premium savings and deposit the money in a savings account each year until you have enough to cover the entire deductible.

Fourth, see if the property qualifies for special deductions for smoke detectors or other features.

Fifth, in some cases you may be able to get a lower rate by combining a homeowers policy with auto insurance, coverage on a second home or both. The advantage to the insurance company is more total revenue and lower marketing costs.

Lastly, shop around and shop around often. Homeowners insurance is something you need and it can pay to check rates at least once-a-year before policies renew.

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Syndicated to newspapers nationwide by Content That Works and posted with permission.

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