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Tips for Reducing Homeowners Insurance Premiums

During the Florida insurance crisis, homeowners are going to have to get into the nitty gritty of their policies and increase their risk if they are going to reduce their insurance premiums. We look at some of the ways how.

Increase your deductible!

Increasing your deductible can make a huge difference to your homeowner's insurance premium. We have seen premiums halved by taking the maximum deductibles for both wind and other events.

It means that the policy is only good in catastrophic circumstances, but people are using the following reasoning: if a hurricane hits, the damage will be catastrophic anyway.

Some have argued that most damage caused in a hurricane is minor and that the home is not totaled (see Florida Government Special-Session on Homeowners Insurance).

Some mortgage company will not accept a wind deductible of more than 2%, so be aware of this. They may not find out, but they may insist you change your policy or force place you with their own insurance.

Some are confiding that in the event of evacuating for a storm, that they will leave all their windows and doors open, so that they can actually cash in on the homeowner's insurance policy!

One of the items coming out of January's legislative pow-wow on homeowner's insurance was increasing hurricane deductibles.

I got one of my insurance brokers (still trying to find a good one) to run a home insurance quote for me using a 5% hurricane deductible. She said that even though she couldn't write a 10% deductible right now she could quote me on it. Out of curiosity I said sure.

Breathtakingly expecting to halve the estimate, it decreased it by about 3% in the case of one policy (dwelling policy) and 6% in the other (homeowner's policy, so it includes Citizens whacky personal property coverage of 50% of the building replacement value).

As a non gambling man I think I will stick with 5%. Thanks Citizens.

Note that having a higher deductible actually moves a more substantial risk to the homeowner.

If a category 3 hurricane makes landfall, the eye is usually only a few miles wide so the most severe damage is confined to a fairly small path. The majority of damage is tropical storm to category 1 damage which isn't total loss for the most part. The majority of damage is that of category 1 to category 2 damage.

None of the homes outside the eye are totaled and most have damage from less than $25,000 worth but now the insurance company has to pay out a lot less then they would have if the homes insured had a 2% deductible.

Yet there are a lot of those people who cannot afford to self insure for the 5% or higher wind deductible they took to get a more affordable rate at a small discount compared to what they must pay out of pocket to re-roof their home, or remove live oak trees that have fallen on the house.

These people are stuck and thinking FEMA will help them because they just don't have $13,000 available to fix their home doesn't work in the way of a small business loan because FEMA denies them based on having home owners insurance, too bad about their high deductible it is of no interest to FEMA or any rapidly available emergency funding for repair. So the insurance company makes more by paying out less with only minimal reductions in premiums making one think they are getting a better deal on premiums.

What this is simply is a give away to the insurance companies and nothing in return that really helps the insured and no matter how its marketed to the public as a victory, it's a loss. If you can self insure for a higher deductible then that is fine.

The reality is that the people that can least afford to self insure and don't have the money to make the premium now are the ones that will take the higher deductibles and will also be the least able to afford the repairs needed out of pocket before the insurance company pays the first penny to them.

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