Don’t skimp on homeowners insurance

There's nothing wrong with wanting to save a buck or two where you can, but scrimping on your homeowners insurance premium might not be the best idea.

"A lot of times, clients are so focused on price that they don't understand what they have given up in return for the lower premium," says Justin Ross, owner of Goosehead Insurance in Coral Springs, Fla. "Then when a claim happens, they're often disappointed with the outcome. This is why I find it so important to take some time with each client to properly set their expectations."

- How much is homeowners insurance?

According to the National Association of Insurance Commissioners, the national average premium is $1,095 a year. Homeowners in Florida pay the most, on average, at $2,094 a year, while homeowners in Idaho pay the least, at $561.

The price of homeowners insurance is partly based on the cost to rebuild the structure, not the price you paid for your house. For example, if you paid $1 million for a 1,500-square-foot house, your premium may only be $650. Whereas a 4,000-square-foot house purchased for $500,000 may require a $1,200 premium to insure.

Of course, include coverage on your home's contents, liability and a possible umbrella policy, your total annual cost will increase.

Other factors that determine the cost of your premium include: size and age of the home, past claims history and whether it has a security system and fire sprinklers. Purchasing multiple policies with the same carrier sometimes reduces the price.

It's important to remember when comparing average premiums that it's an imperfect measure of the relative "price" of insurance due to wide variations in hazards, economic conditions and real estate values from state to state. Even when comparing identical policy forms and amounts of insurance, premiums for homeowners coverage can differ dramatically across the country.

- How much is an insurance deductible?

Your insurance deductible represents a shared risk between you and the insurance company and can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. Regardless, the deductible is your out-of-pocket expense on every claim, and most range between $500 and $1,500.

For example, if you have a $1,000 deductible and your insurance company determines you have a $20,000 loss, you would receive a claims check for $19,000.

A deductible is calculated a bit differently if it's based on a percentage of your home's insured value. For instance, if your house is insured for $200,000 and you have a 2-percent deductible (which equals $4,000), given a $20,000 loss you'd receive a claims check for $16,000. Generally speaking, the higher the deductible, the lower your annual premium cost.

"Currently, the most common deductible that we see and write is $1,000," says Winfred Seymour, account executive at Humble & Davenport Insurance in Renton, Wash. "Although, with higher value homes, a $2,500 deductible is often a better value. There are some carriers that are moving to a deductible that is a percentage of the dwelling coverage, 1 percent to 5 percent or higher, which means that in most cases their deductible is much higher than it was as a flat amount.

"There is a commensurate premium adjustment with the higher deductible, but many people just don't feel comfortable with the higher deductible and they shop for other options."

Deductibles are paid with every insured loss -- there is no "annual maximum" in which the homeowner wouldn't have to pay their part. However there are exceptions, especially in hurricane-prone areas, where homeowners typically have two policies -- one to cover hurricane damage, and one to cover everything else. The hurricane policy deductible is applied to all of hurricane season rather than for each individual storm.

"With Florida insurance, there are always two deductibles," Ross says. "The most common deductibles I see are usually a 2-percent hurricane deductible and either a $1,000 or $2,500 non-hurricane deductible."

Whichever policy and deductible you choose, it's important to review each line of your policy and make sure you understand exactly what your coverage provides.

"Don't think everything is automatically covered, which of course it is not," says Archie Litaker, of Litaker Insurance in Charlotte, N.C. "Pay close attention to coverage, not just price."

Credit: Staci Giordullo Angie's List