This Easy Tip Can Save You Big on Homeowners Insurance

Getty Images Answer: If your deductible is $500 now, increasing it to $1,000 can lower your premiums by up to 20 percent. Most insurers offer much higher deductibles, too, which is a popular strategy for people who have enough money in emergency funds to cover potential costs. Raising your deductible is a good way to reduce your premiums, and it makes you less likely to file small claims that could result in a rate hike. At Chubb, about half of the wealthiest customers choose a deductible of $10,000 to $50,000. "For homes here in Malibu that are valued at $10 million to $25 million, having a $25,000 deductible isn't out of the ordinary at all," says Derek Ross, president of Kulchin Ross Insurance Services, an independent agency in Tarzana, Calif. The higher the deductible, the bigger the premium savings. Let's say, for example, you have a policy with Fireman's Fund with a $1,000 deductible and a $3,000 annual premium. You'd save about 24 percent by boosting your deductible to $2,500, 37 percent by raising it to $5,000, 47 percent by raising it to $10,000 and 53 percent by raising it to $25,000. Compare the premium savings with the extra dollar amount at risk to make sure that boosting your deductible is worthwhile. You should file a claim only if it is at least several hundred dollars more than the deductible. "If your insurer raises your rate by 10 percent for three to five years after you have a claim, that could easily exceed the amount the insurer paid beyond the deductible," says Ross. Whatever deductible you choose, keep enough money in an emergency fund to self-insure up to the deductible -- or even a few hundred dollars more. The risk of self-insuring may not be as high as you think. The average person files a homeowners insurance claim only once every eight to 10 years, says Jeanne Salvatore of the Insurance Information Institute. You could take the money you save in premiums and add it to your emergency fund each year so that you're prepared when you do have a claim, recommends Ross. You could also use the extra money to boost your dwelling, property and liability coverage levels by tens of thousands of dollars.

When buying homeowners insurance, be sure that you're buying enough coverage to rebuild your home, if necessary. Don't look at market prices for homes, but rather at the for your home, which would include removing what's left of your home, buying new building materials, and labor. "Guaranteed replacement" policies should cover the whole cost, while "replacement cost" coverage often covers less than the full amount. Check your policy to see what kind you have, and be sure that your home's value isn't being understated.