A penny saved is a penny earned, so why shouldn’t you try to save everywhere you can? When it comes to home insurance, sometimes it pays to pay more. Sure, you can find a better deal by shopping around, but you have to be careful about leaving enough to cover everything so that you’re not out-of-pocket if you find yourself out of your home. Home insurance is one part of your household budget where you should think twice before you trim. There could be unintended consequences that will wind up costing you more than you bargained for if there is an accident, a natural disaster, or any type of loss.
Home insurance premiums are on the rise, and while premiums vary from region to region, in some places the average premiums are almost $1,300 a year. It’s tempting to see if you can reduce your premiums by changing your contract or increasing your deductibles, but there are some good reasons to stop and reconsider.
#1 You Could Become Under-Insured
Before you try to save on your home insurance, you should make sure you aren’t already under-insured, or that a reduction in coverage won’t make you under-insured. Take a detailed look at your policy to make sure you’re sufficiently covered.
There are three main areas of insurance coverage in the event of a fire or natural disaster: Structure, Contents, and Additional Living Expenses. At Viranilaw.ca/areas-of-practice/residential-damage/ you can learn more about these coverage areas, a resource from an insurance lawyer. Check your coverage limits and deductibles in these areas. If you’re concerned something’s not right, you might even want to have the property appraised.
#2 Changing Weather Patterns
There’s a reason that insurers are charging more for their coverage. Changing weather patterns are taking a big hit out of the insurance business.
Insurance works when losses are spread out. When one house in a neighborhood catches fire, the insurance company can pay out to have it rebuilt because everyone else is still paying their premiums. But when everyone in a neighborhood makes a claim after the whole area is wiped out by a wildfire, the insurer is no longer profitable.
Climate change increases the incidence of wildfire, flooding, and other extreme weather events that affect multiple homes at once. As these become more common across the world, there are major concerns about the affordability of insurance in the long term, as insurance companies struggle to keep up with the costs.
In the meantime, consider where you live. Has there been flooding in the area in the past? What about wildfires? Even a hail storm can be cause for concern, like the one that caused $1 billion in damage to a Calgary neighborhood.
#3 You Can’t Afford to Raise Your Deductible
The simplest way to reduce your insurance premiums is to raise your deductible. A deductible is the amount of money you have to pay out of pocket before your insurance begins to cover the expenses. If you have a robust emergency fund and you can easily afford to pay the difference, go ahead and raise the deductible. You can even put your savings toward your emergency fund.
If you don’t have the money on hand, stop and ask yourself what you would do if there was a fire in your home. How would you get the money to pay the deductible?
Before you make any changes to your insurance coverage, make sure you know exactly how it will affect you in case of a loss.