Insurance premiums have been rising, but you can easily trim more than 20 percent off your bill without reducing your overall coverage.
Q–I have just received my annual bill for homeowners insurance, and it is going up almost 15 percent. It went up 15 percent last year, too. Isn’t a 30 percent increase over two years excessive? Do you have any suggestions for reducing my premiums without cutting the amount of my coverage?
A–Insurance premiums across the nation have been rising steadily, in part because construction costs have also been climbing. It costs more to rebuild or repair a damaged home today than it did just a year or two ago, but those costs certainly haven’t jumped 30 percent. Ask your insurance agent or the company itself to explain the hefty increases.
The best way to save money on your insurance premiums is to comparison-shop among different providers. Insurers set their own rates, so prices vary widely. Contact at least three independent agents as well as a few insurance companies for quotes.
Also think about raising your deductible, which is the amount of money you would have to pay from your own pocket to repair your home before your coverage would kick in. Raising your deductible to $500 from the conventional $250 can easily cut more than 10 percent off your bill. Choosing a $2,500 deductible could save up to 30 percent.
Consider buying your home and auto or life insurance from the same provider. Many companies that offer different types of insurance provide discounts of up to 15 percent if you’ll buy two or more policies from them.
You can get additional discounts if you make your home safer. Most insurers will take 5 percent to 10 percent off their premiums for homeowners who have installed smoke detectors, burglar alarms or deadbolt locks. You’ll save even more if you install indoor fire sprinklers or an alarm system that’s monitored by the police or a private security company.
Finally, don’t forget to ask about other types of discounts. Smoking accounts for 23,000 home fires a year, so some insurers give discounts to nonsmokers. Others offer breaks to retired people or families with a stay-at-home parent, figuring it reduces the chance that a thief will break in or a fire will destroy the property. Insurers and agents don’t always mention the various discounts they offer, so you won’t get them unless you ask.
Q–We applied for a loan to buy a new home two weeks ago. Last week, I was offered another job with a different company. It would pay about the same as my current job, but I would get better benefits and my commute would be shorter. If I take the new job, will it hurt my chances of getting loan approval?
A–It certainly could, so you need to talk to your loan representative or mortgage broker before you accept the job offer.
Lenders like loan applicants to show a steady history of employment. They also get nervous when an applicant switches jobs before the loan is approved, especially if the move involves a pay cut or the new job is in a field that the borrower has never worked in before.
If the lender frowns on the proposed job-switch, you might be able to accept the new position if the employer will agree that you don’t have to start working until the loan has been approved and the transaction closes.
Q–We bought our first home last year and our new tax write-offs earned us a $2,400 tax refund. If we use it to make a one-time “principal-only” payment on our mortgage, how much interest would we save over the life of the loan and how much faster would the loan be paid off? We have 29 years left to go, the outstanding balance is about $135,900, our monthly payment is $1,025 and the interest rate is 8.2 percent.
A–Using your tax refund to make a one-time, principal-only payment toward the outstanding balance of your mortgage makes good financial sense, especially if you’d otherwise spend the refund on items you really don’t need.
If you stick to your original repayment plan, you’ll pay $219,980 in interest over the remaining 29-year life of your mortgage. Using your tax refund to make a one-time, $2,400 principal-only payment now will reduce those interest charges to $198,870 and allow you to pay the mortgage off exactly 27 years from today. In other words, paying $2,400 now will save you $21,110 in future interest and cut an additional two full years off the life of your loan.
You could achieve similar savings by adding a $23 principal-only payment to each of your future loan payments if you decide to spend your $2,400 tax refund on something else.
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Write to David Myers, P.O. Box 2960, Culver City, Calif. 90231-2960.
