Comparison Shopping Works on Insurance: How to and Watch to Watch For

by Kevin on July 12, 2012

My wife and I moved into our home a little more than a year ago. When you buy a home you are required to have homeowners insurance to protect the bank from your home burning down. (The insurance is pitched as a benefit to you, which it is, but if the bank owes 80% of your home then it really benefits them most.) We found an affordable policy and went on with our lives.

Fast forward a year and we get a notification that our home insurance premiums are about to jump for our next renewal. And when I say jump, I mean significant jump, not a slight increase like we experienced on our first home. How bad was the premium increase?

Our premiums were going to go up from $582 to $804.

Yea. That’s $222 or 38%.

Are you kidding me?

As you might imagine that wasn’t going to fly with me, so we immediately started shopping around for a better deal.

Why Homeowners Insurance Premiums Increase

Why did my home insurance premiums go up 38%? There are two reasons that typically cost rate increases (aside from changing the level of coverage, deductible, and so on):

Individual Claims

If you just filed a major homeowners insurance claim on your policy last year, you will probably see your rate going up in the future. It’s just like car insurance: if you actually use the insurance you pay for, your rates start to go up over time because you are seen as more of a claims risk.

You can somewhat control this by obviously not making claims. If you have a small issue that won’t cost much more than your deductible it is probably best to not make the claim and pay for the issue out of pocket. Just like car insurance.

Local, State, or Regional Claims

Unfortunately you can’t control every reason your premium might go up. If your insurer just saw a massive financial hit in your area — whether local, state, or region — you can expect higher premiums across the board. It depends on how your insurer groups areas together. One end of your state might not get the same bad weather that the other end did, so they might split the state up into sections.

Regardless, if bad weather rolls through and does a lot of damage across a wide area, the insurers are going to take it on the chin with claims. To compensate for paying out so much in claims they raise rates across the board.

Unfortunately for us, that was the situation. Last spring there were some really bad storms that rolled through our area and large number of homes had to have their roofs replaced and siding repaired. That caused our insurer to pay out a lot of claims, and thus raise rates this year.

Comparison Shopping Your Homeowners Insurance

Just because your insurer is raising rates on you — even if it isn’t by 38%! — you don’t have to take it sitting down. Shop around and do comparisons to find a better deal.

Check Major Carriers

I always recommend checking with as many major carriers as you can. If they have commercials on during football season, you should be going online to their website to do a quote. Some insurers require you to speak to an agent to get a quote, which is frustrating in our technology-heavy society. Nonetheless that quote might be the lowest one available, so it usually worth your time to check it out.

The Catch: Your Quote May Be Inaccurate

However, there is a catch to looking at these amazingly low quotes: just because the quote on your screen is low doesn’t mean your actual premium will be that low. We got a really low quote online from the insurer we ended up with, but by the time we got through the process with the agent (a requirement of the company) our rate had increased a little bit. We weren’t able to have the exact deductible we wanted because the other deductibles were tied to having an auto policy with the company. There was a $25 policy creation fee we couldn’t get out of.

But still, we saved money. Yet before we signed off on everything there was one more catch…

Find Out When Rates are Increasing

The original quote we got from the company was about the same as what we were paying before our insurer wanted to jack our rates up.

By the time we got through the process, the rate was about $75 higher. More than we had paid last year, but less than what we were going to pay with our current insurer.

I asked why, and was told that rates were increasing in two weeks due to the recent storm damage. Essentially, all of the insurers in our area were increasing rates, but this one hadn’t done it just yet.

So I asked a basic question: what would my premium be if my effective date was before the rate change kicked in. (Of course the agency never offered this suggestion… shocker!)

I was very happy with the result: our new premium dropped to $514. It was over $100 less than the quote they ended up giving us and less than we were currently paying. By putting our policy into place before the rate change we would be locked in for the next year at the lowest rate possible.

Does that mean in 12 months we’re going to get a letter about our rates going up again? Absolutely. Does that mean we have to take it sitting down? Absolutely not. We’ll go back through this process in 12 months and hope to keep our premiums low. In the meantime, we just saved $68 per year over our previous year’s cost.


[email protected] July 28, 2012 at 6:56 pm

It’s funny that people comparison shop almost every purchase except insurance products. To spend hours trying to save a few dollars on your coffee maker or toaster, but not on your $1,000+ car insurance policy just doesn’t make sense, especially since consumers can get free quotes online. I guess it’s just a matter of informing people. Either way, great post. Hope people will take the advice.

Long Term Care Planning August 24, 2012 at 11:28 pm

This is a great guide for people who want to keep their premiums down and save money when buying insurance. I just hope people would take this seriously in order to make the most of their hard-earned money. Keep the informative posts coming!

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