Home insurance: A money-saving check list

The limb of a large tree broken by Tropical Storm Irene lies against a house and in the yard of a home in Providence, R.I., Sunday, Aug. 28, 2011. AP Photo/Stew Milne

Earlier this week I answered a reader's question about when to drop collision insurance on an old car. His question made me think about other ways to save on auto and home insurance, so here are a few things to consider.

With real estate values in decline and folks looking to save a few bucks, some homeowners are thinking about reducing the dwelling coverage on their home insurance. But don't be tempted. Home insurance needs to cover the cost of rebuilding a house, so pegging it to the sale price of the home could leave you without enough coverage.

Homeowners should always check the dwelling limits on their policies to make sure they have enough insurance coverage to completely rebuild their house and replace their belongings.

There are better ways to save money on home insurance, which include:

Increase deductible: Consider a deductible of at least $500. If you raise the deductible to as much as $1,000, you may save up to 25 percent on many home insurance policies. Some policies allow you to raise the deductible to as high as $5,000. Since the average person only files a claim every eight to 10 years, most homeowners will save money over time.

Seek safety discounts: Most home insurers offer at least a 5 percent discount for a smoke detector, burglar alarm or dead-bolt locks. Some companies may offer discounts of as much as 15 or 20 percent if you install a sprinkler system over your kitchen stove or a fire and burglar alarm that connects to a central monitoring station. Water level and leak monitoring and automatic water shut-off systems can also garner a discount, in addition to being a great idea for a second home. But these systems aren't cheap and not all of them will qualify for a discount. Before you buy, find out what your insurer recommends, how much the device would cost versus how much you'd save on premiums.

Bundle All Policies: Most insurers that sell homeowners insurance also sell auto and excess liability insurance. (An excess liability policy provides additional liability coverage.) Many companies will reduce your premium by 10 percent to 15 percent if you buy two or more insurance policies from them. This is called a multi-line discount. But make certain this combined cost is lower than buying the policies separately from different companies.

Seek Extra Discounts: Ask your insurance company representative about any other discounts that may be available. For example, if you're at least 55 years old and/or retired, you may qualify for a discount of up to 10 percent at some companies. If you've modernized your plumbing or electrical system since the last time you updated your policy, tell your insurance company and you may get a price break. You may also pay less if you your house is located close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. While many companies offer these and other discounts, they don't all offer the same types of discounts or the same level of discount in all states.

Finally, when considering home improvements, before you get too far along into the project, ask your insurance company representative what you can do to make your home more resistant to natural disasters such as windstorms, floods, earthquakes. You may be able to save on your premiums by adding storm shutters, shatter-proof glass and reinforcing your roof. Also consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.

Check back in next week; I'll share my favorite money saving moves for your auto insurance.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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