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Home prices may be falling, but insurance premiums are rising

[May 18, 2011.]


Despite declining home prices, the cost of insurance for homeowners is on the rise, according to the personal finance publication SmartMoney. The average annual premium for homeowners' insurance rose to $807 last year. That's after five years of premiums remaining most flat.

Smart Money said:

"Some of the country's biggest insurers have raised rates or say they plan to. Premiums vary by state, but last year, State Farm Mutual Automobile Insurance Co. says it increased homeowners rates 7.3 percent on average and, this year, has raised them in 18 states, including a few by more than 7 percent. By contrast, it cut rates in just two states."

Rising costs to rebuild

Homeowners may be surprised at the rising cost of insurance because of falling home values throughout the U.S. But insurance premiums are not based on home appraisal. They are in part based on the cost of rebuilding a home, and supplies have gotten more expensive. Also, the number of natural disasters that have occurred in recent years can contribute to price increases.

Shopping for insurance

So what should you do if you are facing a big jump in your insurance premiums?

  • Shop around to compare policies. Premiums can differ based upon a variety of factors so get quotes from at least three companies.

  • Ask for loyalty discounts. If you've had the same insurance policy for years, you may qualify for discounts offered to loyal customers.

  • Take advantage of discounts for smoke detectors, burglar alarms and other features.

  • Get multiple policies with your insurer. Getting your auto, umbrella and homeowners' policies through the same company could result in lower premiums.

Mortgages and insurance

Mortgage lenders require that you get a homeowners' policy before closing. Generally, you are required to pay a year's worth of insurance premiums in advance. If you are refinancing a home mortgage with the same lender, you may be able to use the funds in your escrow account to satisfy the insurance requirement. At any rate, give yourself enough time to shop around for an insurance policy so it will be ready by closing.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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