We’ve all been there.
That moment when you realize your credit card debt has piled up (again). And unless you don’t mind the increasing mound of debt, you probably do what we’ve all been taught to do: Figure out what you’re spending money on and start making cuts.
But what if cutting all your “wants” isn’t enough?
It happened to us when we made the switch from being a two-income family to living off a single income. It was a huge blow to our budget -- and it kick-started my journey to finding creative ways to save money.
I turned to The Penny Hoarder for advice on reducing food costs through couponing, and got a better handle on how to track our expenses.
But I wasn’t sure we could do much (if anything) to reduce our mortgage. We’d already refinanced our home in 2015 and had an excellent interest rate.
Then I recalled we’d recently installed a monitored fire alarm and thought it might help us qualify for a reduction on our homeowners insurance.
I called our insurance company to check. Not 30 minutes later, I knew more about homeowners insurance than I’d ever wanted to.
Once the insurance agent understood we were trying to save money, she was forthcoming and helpful in suggesting other ways to lower our costs. I was surprised how willing she was to lead the conversation and explain each section of our policy.
More importantly, I was surprised I’d reduced our annual premium by 20% -- or $240.
Turns out there are several ways to reduce your homeowners insurance that have nothing to do with raising your deductible or botching your coverage.
Here’s what I learned about potential savings. Your company may offer similar options -- it’s worth calling to find out!
Make sure the insurance company has the correct rebuild valuation for your home. That’s the cost it would take to rebuild your home if it burned to the ground.
Most (if not all) insurance companies use automated computer software to calculate this. Every year, the software automatically raises the valuation to account for increased material and labor expenses.
Our insurance company hadn’t checked or verified the rebuild valuation since we bought our home in 2007, and I discovered it was listed at $32,000 higher than it should’ve been! By adjusting our rebuild cost, we dropped our premium by $105 per year.
The typical default personal property replacement coverage is 75% of the rebuild cost.
We were covered for $230,000 worth of personal property -- a ludicrous sum of money we’d never come close to reaching.
Unless you have luxurious furniture and closets full of high-end designer clothes, your personal property is probably worth 50% or less or your rebuild cost. We dropped our coverage to 50% and saved another $33 per year.
Did you know having a monitored security system can actually increase your homeowners insurance?
Apparently, it’s due to the cost of replacing complex wiring in the event of a rebuild. After running the numbers, we found out our insurance would cost $7 less per year without a monitored alarm system!
However, if the alarm system also included fire monitoring -- which we had -- the cost would be $12 lower per year.
By the way -- we were able to get this installed for free, so be sure to check with your security company for deals.
Similar to personal property estimations, insurance companies typically default the "Other Structures" cost to 25% of the rebuild cost.
“Other Structures” is a broad term used to describe the cost to rebuild structures separate from the home, such as a detached garage, tool shed, driveway, swimming pool, patio or gazebo.
If you don't have some (or any) of these items (we don't!), then you don't need coverage for them. We reduced our coverage to 10% of the rebuild cost and saved another $90 per year.
The bottom line: Stop paying for insurance you don’t need!
Two culprits lead to higher insurance premiums: inflated rebuild valuations calculated by automated software (and left unchecked by an actual human), and excessively high defaults for other categories such as personal property and other structures.
At a minimum, get your rebuild valuation checked on an annual basis.
Use common sense (which may be different from the insurance’s defaults) when determining the correct estimates for personal property and other structures.
How much personal property do you really own? What structures would have to be replaced if you needed to rebuild your home?
The answers to these questions could save you hundreds of dollars each year.
Your Turn: Do you know any other ways to save on homeowners insurance?
Meredith Gracey recently switched from full-time chemical engineer to full-time mom of twins, and is slightly obsessed with saving money. She loves to travel, exercise, write and read in her free time.
