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Home Insurance Rates: An Upward Spiral

November 12, 2012 2:37 am0 commentsViews: 9
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c19BE8MRs27D05AC.medby Diane Greeley

When talking about weather-related disasters, 2011 was a record year. A dozen disasters each caused damage costing at least $1 billion. And that was just in the US. Because our domestic insurance companies carry insurance themselves for extraordinary events, their insurance costs go up because of events all over the world. So last year’s tsunami and earthquake in Japan literally cost you money in the end. Last year there were almost $400 billion in worldwide disasters, all putting pressure on rates here. Hurricane Sandy will certainly push rates up in 2013.

Homeowner’s Insurance premium rates are increasing this year 19% or on average $128 more than in 2011. Rates are going up about 15-20% at renewal time due to natural disasters and other factors. There are some steps you can take to mitigate this increase.

Most importantly, as home values dropped in most parts of the country, consumer groups are warning homeowners not to insure on the value of your home but on the replacement value of the home. The two are very different.

Home values go up and down all the time but what never goes down is the price to build a new home comparable to the one you have now. That is what is called replacement value. The cost of raw materials and labor continue to escalate, so we caution you to ask your insurance carrier about the best way to insure to replacement value.

In fact, in 2008, 58% of homes were undervalued in their policies by an average of 21%.  Imagine if your home was destroyed by a fire and coverage fell 20% short.

Besides making sure your policy provides true replacement coverage, there are other factors to consider. Major life events such as those listed below can impact the type of coverage you need, and often provide an opportunity to save money.

1. Have you gotten married or divorced?

If you have gotten married, you may qualify for a discount on your auto insurance. Couples may well bring two cars into the relationship and two insurance companies, so take the opportunity to review your existing coverage and see which company offers the best combination of price and service.

If you are merging two households, you may need to update your homeowners insurance. And you may want to consider increasing your insurance for any new valuables received as wedding gifts, and for jewelry such as wedding and engagement rings.

After getting married, it is also important to review your life insurance needs. If one spouse is not working, he or she might be dependent on the working spouse’s income; if so, reviewing life and disability insurance coverage is prudent. And even if both spouses are working, couples often make financial commitments based on both incomes so the loss of one spouse’s income due to death or disability could be devastating without adequate insurance.

If you got divorced, you will probably no longer be sharing a car and may move to a smaller home. If this is the case, you should inform your insurer as you will need to set up separate auto and homeowners policies.

2. Have you had a baby?

If you have recently added a child to your family, whether by birth or adoption, it is important to review your life insurance and disability income protection. According to a MetLife study of survivors (i.e., spouses and children) of someone who died “prematurely,” 39 percent had no life insurance at all. Of these families, 40 percent had children under age 18. Therefore, in about 16 percent of all cases survivors of prematurely deceased persons were families with young children who had no life insurance.

If you are planning for your life insurance to match your survivors’ expenses after your death, the new child will likely add to those expenses, requiring more life insurance to keep your family secure. If you plan to save for your child’s college education, life insurance can assure completion of that plan. And if you keep your current life insurance policy, don’t forget to update the beneficiary designations to include the new child.

3. Did your teenager get a drivers license?

It is generally cheaper to add your teenagers to your auto insurance policy than for them to purchase their own. If they are going to be driving their own car, consider insuring it with your company so you can get a multi-car discount. And choose the car carefully! The type of car a young person drives can dramatically affect the price of insurance. You and your teens should choose a car that is easy to drive and would offer protection in the event of a crash.

Also, encourage your kids to get good grades and to take a driver training course. Most companies will give discounts for getting at least a “B” average in school and for taking recognized driving courses.

If your teenagers move at least 100 miles from home-for example, to go to college-you can get a discount for the time they are not around to drive the car (assuming that they leave the car at home).

4. Have you switched jobs or experienced a significant change in your income?

If you had life and disability insurance through your former employer, and your new employer does not provide equivalent protection, you can replace the “lost” coverage with individual policies.

In the case of an income increase, you may have taken on additional financial commitments that your survivors will depend on. Make sure to review your life and disability insurance to ensure it is adequate to maintain those commitments.

If your income decreased, you may want to cut your household expenses, including your life insurance premiums. Fortunately, term life insurance rates have been dropping, so if you bought your life insurance more than five years ago, shop around. You might be able to pay less for the same protection. If you have two or more policies you might be able to replace both with a single policy at a lower rate because you may reach a “milestone” amount of insurance. (For example, at many companies, $500,000 of insurance costs less than $450,000 because of the milestone discount.) But don’t drop existing life insurance until after you have a new policy in place.

5. Have you done extensive renovations on your home?

If you have made major improvements to your home, such as adding a new room, enclosing a porch or expanding a kitchen or bathroom, you risk being underinsured if you don’t report the changes to your insurance company. And don’t overlook new structures outside of your home. If you have built a gazebo, a new shed for your tools or have installed a pool or hot tub, you should speak to your agent.

6. Have you decided to buy a retirement or vacation home?

If you are searching for your dream vacation home or a second home you might retire to, make sure you research the availability and cost of homeowners insurance before you commit to the purchase. Often, the very factors that make a vacation home seem ideal, whether it is a waterfront property or a mountain retreat, can introduce risks that, together with the fact the home is likely to be vacant much of the time, can make it costly and difficult to insure.

In the event you have already bought a vacation home, don’t skimp on the insurance. The risk of theft or disaster is just as significant, if not more so, in a second home as in your primary residence. Hurricane Sandy has been a stark reminder of this.

If your new property is close to the water, be sure to ask about flood insurance. Damage to your home or belongings resulting from flood is not covered under standard homeowners insurance policies. Flood insurance is available from the National Flood Insurance Program (NFIP), as well as some private insurers, and is generally sold through private agents and brokers. You can ask your agent or representative whether your home is at risk for flood, or enter your address on the NFIP Web site to find out whether your home is in a flood zone. If you have a very valuable home, some homeowners insurers offer excess flood coverage over and above that provided by the NFIP policies.

Think carefully about what your financial position would be in the aftermath of a disaster, and make sure you have the type of policy that is right for you.

7. Have you acquired any new valuables such as jewelry, electronic equipment, fine art, antiques?

A standard homeowners policy offers only limited coverage for highly valuable items. If you have made purchases or received gifts that exceed these limits, you should consider supplementing your policy with a “floater,” a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss. Before purchasing a floater, the items covered must be professionally appraised. Keep receipts and add the new items to your home inventory.

8. Have you signed a lease on a house or apartment?

If you are renting a home, your landlord is responsible for insuring the structure of the building, but not for insuring your possessions — that is up to you. Nevertheless, nearly 7 in 10 renters say they do not have renters insurance, despite the fact that, according to the U. S. Bureau of Justice Statistics, rented households are burglarized at rates about 50 percent higher than owned households. If you want to be covered against losses from theft and catastrophes such as fire, lightning and windstorm damage, you should invest in renters insurance. Like homeowners insurance, renters insurance includes liability, which covers your responsibility to other people injured at your home, or elsewhere, by you and pays legal defense costs if you are taken to court.

9. Have you joined a carpool?

If you are a frequent carpool driver, whether it is to work, or ferrying kids to school and other activities, your liability insurance should reflect the increased risk of additional passengers in the automobile. Check with your agent or representative to make sure your coverage is adequate.

10. Have you retired?

If you commuted regularly to your job, then in retirement your mileage has likely plummeted. If so, you should report it to your auto insurer as it could significantly lower the cost of your premiums. Furthermore, drivers over the age of 50-55 may get a discount, depending on the insurance company.

As part of your annual review, it is always a good idea to talk with your insurance agent or company representative.

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