Financial Self Help Blog

Catching Cost Creep in Homeowner’s Insurance Bills

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Filed under: Personal Finance - Saving Money.

Homeowner’s insurance is frequently a requirement for those who use mortgages to finance the payment of their homes or they live in areas where catastrophic risk exists, such as flooding. In many cases, people receive the bill annually and accept it as a necessary evil for owning the American Dream. However, in some cases that cost can be reduced significantly.

Standard homeowner’s insurance policies are written up combining a number of coverages, similar to an automobile comprehensive policy. Each subset of the package covers a different type of risk or provides and adjustment based on the known information about the property. These factors change over time, depending claims filed, the age of the house, and the market for rebuilding a similar house after a disaster.

When a consumer receives his annual invoice, the summary page will frequently total how much needs to be paid for the new year of coverage. While all the detail is provided in attached pages, it frequently is not spelled out clearly or even mentioned in the summary. As a result, a smart homeowner should start with a comparison to last year’s bill.

The first thing one will likely notice is that the new bill is higher than the old one. Insurance providers have a habit of sticking in new costs and if the bill is paid the homeowner accepts the changes. But this is not always a requirement. By comparing to the previous year’s bill a homeowner can quickly see what changed. A few pages in, the package will detail how the total cost was arrived at. Comparing side-by-side will reveal which items were adjusted higher and which new items didn’t exist before. The savings can be in the hundreds of dollars.

With this ammunition a homeowner can then call his insurance provider and question the changes made. More often than not, many changes will be associated with ambiguous reasons such as “market adjustments,” “inflationary factors,” and probably the most truthful, “operational cost increase.” Homeowners don’t have to agree to these and can request them to be removed. The insurer will argue about some loss of coverage but if a house is worth $250,000 it usually won’t need $600,000 of coverage.

Keep in mind, some polices are priced per government rules and cannot be changed. Flood insurance and earthquake insurance are typical examples. To score savings on these coverages, a homeowner must choose to reduce total coverage if possible.

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