Mortgage Refinance Information

We all need insurance. When refinancing, it is absolutely necessary to have the right insurance, or the refinance lender may not release funds to you. In that light, have you ever paid your insurance bill, and then wondered afterwards whether or not you got a good deal?

For most of us, that is where it stops. However, in all likelihood, you could have slashed those rates by a good amount, if you had only known a few of the secrets surrounding this somewhat confusing industry!

The following are a few of the secrets we have collected to make this process easier and much less expensive, as well as to stay informed about the things you should know:

1. Shop Around!

It could take some time, but this can save you a ton of money. Ask your friends or acquaintances, check the Yellow Pages, do a Google search, or contact your State Insurance Department (contact info is listed below). The National Association of Insurance Commissioners (www.naic.org) also has information to help you choose an insurer in your State, including any complaints registered against specific insurers. States will often make information available for free, (such as typical rates charged by major insurers) and many states provide the frequency of consumer complaints listed by company.

Also, check consumer guides, insurance agents, companies and online insurance quoting services. This will give you a very good idea of price ranges and help you see immediately which companies have the lowest prices. However, don’t just consider price alone! The insurer you select should not only offer a fair price, but also deliver a high quality of service you would wish for if you needed assistance in filing a claim. In assessing service quality, use the complaint information you find during any searches and talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. This is all a bit of work, but it pays!

You can check the financial stability of the companies you are considering for free with rating services provided by such companies as A.M. Best (www.ambest.com) or Standard & Poors (www.standardandpoors.com). You may also be able to consult consumer magazines.

Once you’ve narrowed the field to three insurers, get price quotes from each of them.

2. Increase Your Deductible.

A deductible is the amount of money you must to pay down toward a loss before your insurance company will start to pay on a claim, (in accordance with the terms of your policy). A simple rule of thumb is, the higher your deductible, the more money you will (or should) save on your premiums. These days, most insurance companies recommend that refinancers take a deductible of around $500 (minimum). However, if you can afford to raise your deductible to $1,000, you can save as much as 25 percent on your insurance premium! Also, if you live in a disaster-prone area, your insurance policy may have separate deductibles for certain kinds of damage. For example, if you live near the East Coast, you may have a separate windstorm deductible; if you live in a State where hail storms are a monthly occurence, you may have a separate deductible just for hail; if you live in an earthquake zone, you will have a separate earthquake policy deductible.

3. What You Paid for Your House Does Not Equal the Cost of Rebuilding or Repair.

The land under your house is not at risk from theft, fire, wind storms, and other potential issues laid out in your insurance policy. So do not include its value in deciding how much homeowners insurance to buy! If you do, you will pay a higher premium than you rightly should.

4. Buy Your Home and Vehicle Insurance Policies From the Same Provider

Some insurance companies that sell whole package insurance (i.e. homeowner, auto, and liability) will often take 5 to 15 percent off your premiums if you simply buy two or more policies from them, especially if refinancing. However, make certain that this combined price is lower than buying the separate coverages from a competing insurer!

5. Take Steps to Make Your Home More Disaster-Proof.

Your insurance agent or company rep will be able to tell you many different improvements you can make to your home to make it more resistant to things like windstorms, earthquakes, floods, fires and other common disasters. For instance, you may be able to save on your premiums by simply adding storm shutters to your windows, or by reinforcing your roof or buying stronger roofing materials. Even older homes can be retrofitted to make them better able to withstand natural disasters, like earthquakes. In addition, modernizing your heating, plumbing and electrical systems help to reduce the risk of fire from poorly wired circuits and water damage from faulty plumbing.

6. Make Improvements to Your Total Home Security.

You can typically get discounts of at least 5 percent, just for having things like a smoke detector, burglar alarm or deadbolt locks. Some companies even offer to cut your premiums by as much as 15 or 20 percent if you install a sophisticated (albeit somewhat expensive!) sprinkler system and a monitored fire and burglar alarm system. While not cheap, these systems often help you to qualify for a good discount. Before you buy such a system, it would be a good idea to find out what kind your insurer recommends, as well as how much the device would cost, and also how much your savings would be (perhaps it is not enough to justify the extra expense, especially if only refinancing).

7. Look for Other Ways to Obtain a Discount

Companies usually offer many types of discounts. However, they don’t all offer the exact same discount or even the same discount amounts in all areas they do business (i.e. since retired people spend more time at home than working away from it, they are much less likely to be robbed, and would typically spot fires or other potentially damaging issues sooner). As well, retirees usually have more time to maintain their homes (important when applying to refinance as well).

If you are at least 55 years old and are retired, you can usually qualify for a discount of 10 percent (or more) at many insurance companies. On the flip side, if you are not retired yet, some employers and professional associations will administer group insurance policies that might even offer better premiums than you can get elsewhere.

8. Build and Maintain a Good Credit Record.

Establishing a solid credit history can cut your home insurance costs, as well as make refinancing much less expensive (lower interest rates, etc). Insurers are using credit information more and more to price insurance policies for homeowners. In most States, your insurer must, by law, advise you of any adverse action they may take against you (such as increasing you rate amounts), at which time you should make sure that the information on which they relied is accurate! To protect your credit rating, pay your bills on time, don’t obtain or apply for more credit than you need, and keep your credit card and other debt balances as low as possible. As well, make it a habit to check your credit record on a regular basis and have any errors you may find corrected right away so that your record remains accurate, and your credit remains good.

9. Don’t Continually Jump Ship.

If you have used the same insurance company for several years, you may receive a loyalty discount for being a long-term customer in good standing. Some insurance companies will reduce their premiums by 5 percent or more if you stay with them for anywhere from three to five years and by 10 percent or more if you remain a policyholder for more than six years. Again, however, make certain to periodically compare this price with that of other policies to make sure you’re actually getting a discount.

10. Do a Yearly Review of Your Policy Limits and the Value of Your Possessions.

(This also helps greatly when being assessed for refinancing). Typically, you want your policy to cover any major purchases or additions to your home. However, nobody wants to spend money for coverage they don’t need! If the fur coat you bought new five years ago is no longer worth the $5,000 you initially paid for it, you’ll want to reduce or maybe even cancel your floater (extra insurance for those items whose full value is not necessarily covered by standard homeowners policies, such as expensive jewelry, high-end computers, or valuable pieces of art) and pocket the difference. The money is better in your pocket than in the insurance companie’s!

11. Look for Private Insurance if you are in a Government Plan

If you live in what is considered a high-risk area (i.e. is your area especially vulnerable to storms, fires, or crime?) and have been buying your homeowners insurance through a Government Plan, it may be a good idea to check with an insurance agent or company rep (or even contact your State Department) for the names of companies that might be interested in taking you on as a customer. You may find that there are some steps you could possibly take that would allow you to buy insurance at a much lower price in the private market!

12. Before Purchasing a Home, Consider A Few Options…

You will typically pay less for insurance if you purchase a house within close proximity to a fire hydrant, or if it is in a community that has a professional fire department rather than a volunteer one. Also, it is cheaper if your home’s electrical, HVAC, and plumbing systems are less than a decade old. If you live in the East, consider buying a brick home (more wind and fire resistant). If you live in an earthquake zone, look for a wood-framed house (more likely to withstand this type of disaster). Purchasing wisely could cut your premiums by another 5 to 15 percent!

Check with CLUE (aka the Comprehensive Loss Underwriting Exchange) to see if they have a report on the home you are thinking of buying. These reports will contain the insurance claim history of the property, and can greatly help you forsee some of the future problems the house may have.

Remember: flood insurance and earthquake damage are not covered by your standard homeowners policy! If you buy or refinance a house in a flood zone, you will have to pay for an extra flood insurance policy rider that usually costs an average of $400 or more per year. The Federal Emergency Management Agency provides very useful information about flood insurance on its website at www.fema.gov/nfip. A separate earthquake policy is typically available from the majority of insurance companies. The cost of such coverage will also depend on the likelihood of earthquake occurrence in your area. In California, the California Earthquake Authority (www.earthquakeauthority.com) is the organization that provides this coverage.

If you have questions about possessions insurance, ask your agent or company rep when you’re doing your policy shopping. As an example, if you run a home-based business, be sure to discuss what coverage you might need for that business. Most homeowner policies will cover home-based business equipment, but only up to a small amount (usually under $2500) and they typically offer zero business liability insurance. Although you of course want to lower your homeowner insurance premium, you should make certain you have all the necessary coverage for your business too.
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