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HOMEOWNERS INSURANCE – Don’t insure the small stuff

Insurance should be purchased to cover the catastrophic risk. Often times, homeowner’s policies are written with small deductibles, i.e. $500 or $1,000. Expressed as a percentage of your homes’ replacement cost, your deductible might be a small fraction of one percent. Consider raising the deductible to a level that you can live comfortably with. A rule of thumb is between ¼% and ½%. Depending on the location of your home, certain perils such as windstorm may require a higher deductible of 2% or more. Your insurance carrier usually mandates these higher deductibles.

Most people pay their homeowners premium year after year and never submit a claim. Eventually, a pipe breaks or the roof leaks and you are looking at repairs totaling a few thousand dollars. If you are one of those who say “I’ve paid the insurance company all these years without submitting a claim…. and therefore, I’m entitled” – you might want to think twice. Most Insurance companies will charge you with that claim and look to recoup their loss with future premium increases. Moreover, the claim history follows you as you look to replace coverage with another carrier. Some carriers use a “two strikes and you’re out” rule; meaning that two claims are enough to turn you away as a prospective policyholder.

Scheduled jewelry usually costs between 2% and 3% annually. Here too, look at you schedule and ask yourself, “would I replace this?” or “would it really matter if this were lost?” Depending on your appetite for Jewelry, those who purchase expensive items or have an extensive collection may pay more in premium for the jewelry floater than for the homeowner’s policy itself.

Fine Arts on the other hand is relatively inexpensive to insure. Any item of significant value (including antiques) should be scheduled. Be sure that breakage is covered for those items that are susceptible. Virtually all carriers will require a bill of sale or current appraisal in order to schedule any item of value.