Is Your Home Insurance Coverage Adequate

As the overall cost of replacing a home has risen due to the impact of multibillion-dollar natural disasters, it's hard to open an annual homeowners insurance bill without fear.

Yet if you're tempted to save money, don't underinsure in order to offset rising premiums, say financial professionals. But there are measures you can safely take to blunt those increasing costs while making sure your coverage is adequate.

Clean Up Your Credit Score

Remember that credit scores are being used for many purposes besides offering credit. Increasingly, insurers set pricing based on how much credit you're already using, which obviously puts a strain on finances if you suffer damage at your home or lose your job. Make this a first step in keeping your overall costs down.

Test Replacement Coverage at Several Insurers

Keep in mind that your insurer isn't insuring your land – that's not going anywhere – but the structure and contents on top of it. That's why the insured amount of your home seems so much lower than what someone would pay for it if it went on the market. Many financial planners recommend taking out a guaranteed-replacement-cost policy. The insurer pays for the cost of fully replacing the property even if costs exceed the policy's stated value of the home. Go for the highest replacement value at the lowest cost.

Value Your Improvements

Insurers will ask if you've upgraded a kitchen, added a floor or another bath, but if you didn't do this at the time you were considering the project, here's a resource for valuing various project costs to get an idea of whether the insurer's replacement cost estimate is somewhere close to reality. It's Remodeling magazine's annual Cost vs. Value report Web site. It allows you to check costs by project and region, which is helpful.

Always Keep a Thorough Home Inventory

And don't forget to update it regularly. You may no longer have certain computers, jewelry, art or fur coats in your home, and if you've insured that material in the past, tell your agent to leave it out of the current estimate. Of course, if you've replaced those items with other expensive items that wouldn't be covered with your ordinary household items, make sure you price adequate coverage. Digital cameras make it easy to photograph whole rooms as well as valuable items – you can put those images on a disk or hard drive and store them in a fire safe with your policies.

Consider Higher Deductibles

One of the best ways to cut your overall premium is to take on more risk. That means taking a higher deductible. If you have a $250 deductible, raise it to $1,000, and you might be able to save up to a quarter of what you'd pay in annual premiums.

File Claims Only for Major Items

If you keep filing claims for damage under $1,000 several times during the course of three to five years, you'll see your premium creep up and up. Try and keep your claims behavior confined to larger events and go out-of-pocket for the rest.

Check All Available Discounts

Security and fire alarms – provided they're working – are great ways to keep your premium lower on a long-term basis.  If you haven't purchased a system, ask your agent how significant the cost benefit will be over time. There are other discounts as well. Buying home, auto and other coverage from the same insurer might lower your overall rates considerably, and depending on the insurer, they might give you a break for a brand new home or new hail-resistant roofs.

See if Those Dwelling with You Will Cost You More … Or Less

If your entire family smokes, you'll pay more – for that matter, you'll pay more if one person smokes. If you have a senior in the home, you might get a discount because they're home more and can watch for problems in the home and in the neighborhood. Also, give some attention to the pets you have in your home – certain insurers are asking more questions about breeds deemed to be more predatory, and therefore greater risks for liability.

Consolidate Coverage

Buying both home and auto insurance from one carrier has long been a way to cut the overall cost of premiums, but see if a competitive life insurance, disability or other insurance product you legitimately need might also lower your overall insurance bill if you buy those coverages together. An outside expert like a financial planning professional might be a good resource on any insurance you're buying and may offer good tips to follow when buying in your community.