Saving on your homeowner's insurance

My estate, insured to the max.

I recently discovered that I was paying an extra premium to insure "outdwellings" on my vast estate. That's fun, because I don't actually have any outdwellings, unless you count the compost bin -- can you imagine putting that in a claim? -- or my Crazy Lab, who dwells out there, just lying in the snow watching the trees.

So I perked up when I saw this article on how to save money on insurance. A lot of these tips cost money, but if you're doing it anyway, why not check to see if the company will give you a break? And I found reading through them that they are a good checklist for safety risks in your home.

Here are a few:

New Wiring: Save Money and Lives. The math is simple: house + old wires = fires. According to the U.S. Fire Administration, in a typical year, home electrical problems result in 67,800 home fires, 485 deaths and $868 million in property losses, according to a 2006 report. The USFA estimates that home wiring causes twice as many fires as electrical appliances.

New Ratings Models: This Year's Could Cost Less. Home insurance is a changeable business, in large part because real estate is a dynamic market. Actuarial experts crunch the numbers as neighborhood values rise and fall and construction costs ebb and flow in order to develop models that help insurance companies manage their risk. Since your homeowners insurance rate naturally flows from these models, it follows that rates can change as well -- sometimes in your favor. In some cases, new models are used to establish lower rates to attract new customers.

New Home or Renovation: Have Fewer Safety Risks. n auto insurance, a new car will usually cost more to insure than an older model. In home insurance, however, the savings often goes to the new house or one that has been recently renovated. The reason? New pipes don't leak, new furnaces don't malfunction, new electrical panels and wiring don't cause fires, and new roofs, chimneys and foundations don't lead to costly claims.

More at the link.

Accept a little risk in life

Notice how when you buy a toothbrush the salesperson will try to sell you an extended warranty for it? Here's a rule of thumb: when someone is trying hard to sell you something, they're not doing it out of the goodness of their hearts.

Here are some numbers from SmartMoney:

What’s behind the proliferation of policies? For the companies that write them, they can be extremely profitable, says John Rost, founder and chief executive of Fiesta Insurance Franchise. Insurance is designed so we can all pay a little bit so that a small fraction of us can be covered in the event of a disaster. But many of these non-catastrophic policies don’t quite work that way. Between premiums and the deductible, customers with cellphone insurance could end up paying the insurance company more than it would cost to buy a new phone outright. And acccording to some estimates, the profit margin on extended warranties – basically, a form of insurance to protect your gadgets beyond what the manufacturer’s warranty covers – is a whopping 50%.

Ouch. The answer is to self-insure, not for anything catastrophic like your house or life, but your cell phone ... ?

With average premiums around $5.64 per month, according to Citizens Utility Board, cell phone insurance is cheap. But even with the coverage, losing your phone can still be expensive. The policies usually require a deductible of up to $100, in addition to the premiums, and there are often exclusions for common mishaps like cracked screens. Plus, some cell phone issues are covered by the manufacturer’s warranty anyway, the average cell phone isn’t all that expensive, and the insurance company might replace your phone with a refurbished model rather than a new one. “It’s not worth it,” says Schwark Satyavolu, co-founder and CEO of BillShrink.com.

Cost to “self-insure”: $100 - $600. To cover yourself, you simply want to save enough to replace or repair your phone. The average phone repair usually ranges from about $30 to $100, but new phones without a contract are more expensive. Standard phones cost $189 on average, while BlackBerries, iPhones and other smartphones can run up to $599, according to an October 2010 BillShrink.com analysis.

For a long time I thought about insuring my hair against loss, but it's too late -- a pre-existing condition.

Don't automatically buy extended warranties

You have to ask yourself: why is the merchant so eager to sell me an extended warranty or insurance? Because they will lose money on it?

The Consumer Federation of America has issued a new warning about these thiings:

According to J. Robert Hunter, the federation’s director of insurance, such add-on policies bought directly from the seller are often more expensive than if they were bought independently because the product sellers are generally offering insurance from insurers who would give them the highest commissions, driving up prices. In some cases, such “reverse competition can more than double the price of the insurance,” Mr. Hunter said in a statement.

The federation offers three steps for making the decision.

• First, consider if you really need the insurance. 
• Second, find out if you already have the coverage in your existing policies like your home or health insurance. 
• And finally, if the answer to the previous question is “no,” figure out if there are less expensive options out there.

Certain types of insurance generally aren’t necessary or are more expensive when bought as add-ons. 

These include credit insurance or debt cancellation insurance bought with the purchase of a car, home or furniture; title insurance sold at the closing of a home; travel insurance sold to you when you’re making travel plans; and collision insurance from car rental companies (your normal auto insurance or credit card policy probably already covers you). See the federation’s warning for more details about these policies.