Are you paying too much for home owners insurance?
If you combine a sharp drop in home values from their peak in the spring of 2006 with an increase in competition among insurers, that’s a real possibility.
It’s worth checking, says Steve Enright, a fee-only Certified Financial Planner from River Vale.
In reviewing home owners insurance policies for clients, Enright has found that some are overpaying because they have too much coverage or because they haven’t taken advantage of the growing competition in today’s market.
He cites a recent example of a client with a house insured for $1.2 million and an annual premium of $2,580. For the same coverage with a different insurer, the premium was $1,450.
But the house—including land—is valued at only $1.1 million today. Based on $200 per-square-foot replacement cost, the actual structure needs to be insured for only $900,000, Enright said.
“What this means is that many homes may have been over-insured even before the real estate crash,” Enright said.
But don’t get market value and replacement costs confused, says Jeanne Salvatore, senior vice president for public affairs at the Insurance Information Institute, an industry trade organization.
A big chunk of a home’s value includes land, she said, and has absolutely nothing to do with how much insurance you need.
“How much does it cost to rebuild the house and to re-buy your personal possessions in it?” Salvatore asked. “That’s the number to look at. Unfortunately, rebuilding costs have not come down.”
You can use an online calculator to estimate your home’s replacement cost, such as building-cost.net (it’s free) or accucoverage.com (it’s $7.95, but easier to use), or you can hire an appraiser ($250 to $500).
Even if you don’t change the face value of your coverage, you might still save money because of the increased competition among insurers, Enright said.
“We’ve certainly had clients who have chosen not to reduce the coverage amount,” he said. In almost every case, they’ve been able to lower their premium between $200 and $1,400 per year.
“Call or go online to get two or three quotes on your home owners insurance. In most cases, you’ll save money,” Enright said.
And don’t forget to check with your existing carrier and see if you can get a lower rate. You’ve got nothing to lose.
Shopping around always makes sense, Salvatore said. “There are a lot of home owners insurance companies out there and they do want your business.”
But don’t shop on price alone, she warns. Rather, as in buying any service, get recommendations, check references and check consumer guides, she said. “Once you find a couple of companies that come highly recommended, then you want to shop prices.”
Unfortunately, the tough economy could also lead to increased insurance rates through a domino effect: Higher debt leading to lower credit scores leading to higher insurance rates.
“Most insurers now base a major part of their premium calculations on a consumer’s credit-based insurance score, a close cousin of the credit score,” Consumer Reports magazine said in its November issue.
“In general, lower insurance scores produce higher premiums, because statisticians have found an association between lower scores and a higher likelihood of filing a loss claim.”
Insurance companies use different methods to calculate scores and convert them into premiums—and each keeps its method secret—so the impact of reduced scores varies from carrier to carrier, the magazine said.
So what’s a consumer to do?
The advice is same as it was with Enright: Shop around.
But you can’t shop around if you’re overpaying local property taxes due to falling home values.
You can, however, challenge the assessment, although the process can be complicated and costly, Enright said.
“I think the great majority of home owners can save money on their home owners insurance. But the great majority of people who challenge their property taxes won’t get a reduction,” he said. “Some will, of course, but most towns are assessed pretty fairly.”
Still, it’s worth considering an appeal if you think your property is overvalued.
Remember: Appeals are on assessments only, not taxes. In most cases, they must be filed by April 1 of the tax year, or 45 days from the date of mailing of assessment notices, whichever is later.
For details: state.nj.us/treasury/taxation/pdf/lpt/ptappeal.pdf
E-mail: demarrais@northjersey.com Blog: northjersey.com/ moneyblog
Comparing rates
There are many insurance comparison sites on the Internet—including netquote.com, hometownquote.com and insureme.com—but the best place to start is the New Jersey Department of Insurance and Banking site, state.nj.us/dobi/division_consumers/insurance/ homeowner.htm.
In the “tools” section near the bottom of the page, click on “Premium Comparison Survey,” for a list of rates for all the companies selling homeowners insurance in the state. You’ll find wide variations in rates, but you need to contact individual companies to find out what is covered and what is not.
The site also includes tips on shopping for insurance
By Kevin DeMarrais House Logic, December 5, 2010
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