Many older Americans who own homes enter retirement looking for ways to cut expenses. And one such place could be their homeowner’s insurance.
Indiscriminate cutting of property and liability coverage would be unwise. After all, a home is in many cases the largest investment a family might have.
So, what then is the best way to go about evaluating coverage and finding ways to cut costs?
Is your coverage up to date?
Read your policy and make sure your insurance coverage is up to date, especially if it’s a policy you have owned for some time, says Scott Hughes, a managing partner at Hughes Financial Services. “Older policies may provide for inadequate coverage,” he says.
For his part, Joshua Mungavin, a principal with Evensky & Katz/Foldes Financial Wealth Management, recommends speaking with your insurance broker yearly to make sure you’re not over or underinsured and, each time, make sure your insurance broker knows the value of the home, any buildings on the property and the contents of your home.
“You generally would only want to insure the value of the buildings rather than the value of your land and buildings,” he says.
Others recommend purchasing guaranteed or extended replacement cost coverage on your home and contents. “Actual cash value coverage will pay only the current value of the asset after age and wear and tear are deducted,” says James Shagawat, president of Windfall Wealth Advisors.
And Shagawat also recommends updating your policy every time you make significant improvements. “Otherwise, those changes may not be covered,” he says.
As you review your policy, Brett Anderson, a certified financial planner with St. Croix Advisors, recommends checking your coverage for sewer backups. “Most policies have a $5,000 limit,” he says. “All I know (is) if my sewer backs up, $5,000 is just the start of the costs.”
Also, make sure you have at least $50,000 of identity theft coverage. “Every day we hear about another hack of our personal information,” Anderson says.
Increase your deductible
If your deductible is $500 or $250, ask yourself if you would issue a claim for something that small.
“If the answer is no, then why pay for the low deductible you don’t plan to utilize?” asks Mark Beaver, a financial planner at Keeler & Nadler Financial Planning and Wealth Management. “Another reason to potentially raise the deductible is if you have an adequately funded emergency fund. If so, you have the means to cover a higher deductible, like $1,000, which will reduce your premiums each year.”
Also, avoid making small claims. “They could get you dropped,” Shagawat says. “Avoid even calling your agent, which often triggers a claim file. Insurers share their data with other underwriters.”
Sign up for duplicate premium notices
Peter Palion, a certified financial planner with Master Plan Advisory, says older single retirees should consider designating a child or another trusted younger relative to receive duplicate premium notices.
“Retired homeowners usually don’t have a mortgage, and consequently the insurance premium is no longer paid by the bank from the escrow account,” he says. “The premium notices are sent directly to the homeowner, who may displace or forget to pay the bill. Coverage could be cancelled for failure to pay the premium due, with potential catastrophic consequences.”
Kenneth Lovell, a lecturer at University of Texas Rio Grande Valley, recommends shopping around for the best rates. Your homeowner insurance company may have incurred losses due to hail, wildfires or windstorms and increased their rates. “Other companies may not have incurred as many losses and did not raise rates or raised them slightly so their rates will be cheaper,” he says. “Some even offer discounts for seniors.”
Shagawat also notes that security systems that connect to police and fire stations, as well smoke detectors, may lower costs 10 percent.
Don’t cancel your insurance
According to Lovell, many lower-income Americans – especially those who have never had a claim – cancel their homeowner’s insurance after they pay off their mortgage. That would be a mistake. “For many lower-income retirees, their homes represent the greatest part of their net worth, and for older homes they have greater risk of fire,” he says.
Raise your credit score
Many insurers use credit scores to help identify individuals who will make greater claims. According to Lovell, a Texas Department of Insurance study showed there was a high correlation between individuals with low credit scores and individuals that had more claims. “So, improving your credit score may lower your homeowner premiums,” he says.
Check your liability coverage
A homeowner’s insurance policy protects the insured and all resident family members against liability for bodily injury and property damages that may occur on or off the insured’s premises due to negligence, according to Personal Financial Planning Theory and Practice.
According to Lovell, many homeowners increase their coverage as their home increases in value, but they often forget that, as they get older, their 401(k) plans and other defined contribution plans have increased in value.
Money in retirement plans may be protected from liability suits, but when homeowners withdraw that money it’s not.
“A retiree could lose some or all of their retirement nest egg if someone slips and falls do to negligence of the homeowner,” Lovell says. “This is because many homeowners don’t increase their liability when their retirement funds are no longer protected. So, they may only have $100,000 in liability but $500,000 or more in unprotected funds subject to liability litigation. This could ruin their retirement.”
Working from home?
Some retirees, after working outside the home for years, might be setting up a side business run out of the home, says Mark Smith, president and founder of Vision Wealth Planning. “Depending on the business and whether customers will be onsite, additional liability coverage may be necessary.”
Buy umbrella insurance
According to experts, the most overlooked coverage is personal liability. Buy enough personal liability coverage to equal your net worth, says Kristin Sullivan, the owner of Sullivan Financial Planning. “A retiree may be more likely to have helpers in the home,” she says. “If someone falls and sees deep pockets in their client, the retiree could be at risk of being sued.”
Some items in your home – jewelry and other valuables – may require special riders to cover them, Mungavin says.
“Don’t assume that just because you have a certain dollar amount of personal property coverage that all your personal items will be covered up to that amount,” he says. “For instance, jewelry may only be covered up to $500 when your personal property coverage might be $30,000.”
Referenced from usatoday.com site