Consumers Can Ease Costs of Insurance

Homeowners insurance rates are expected this year to notch their biggest increase in more than a decade--rising by as much as 50% in some cases. But there are a few steps consumers can take that might make a dent in their rates.

The steps are simple: shopping around for better rates, taking on more risk by raising your deductible and making sure you’re getting all available discounts. But the savings can be significant. In some cases, policyholders can cut their premiums in half.

“It pays to be insurance-savvy these days,” said Pete Moraga, spokesman for the Insurance Information Network of California, a Los Angeles-based industry group. “Consumers have a lot of control. They just have to understand how to use their power.”

The biggest savings go to those willing to accept a bit more risk, industry experts say. By increasing the deductible on a homeowners policy to $1,000 from $250, a policyholder can shave as much as 40% off the annual premium, said Robert Hunter, director of insurance for Consumer Federation of America.

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Cutting Premium

For example, the cost of a sample $200,000 policy for a Sacramento homeowner with a $250 deductible would be $1,016 annually, Moraga said. Raising the deductible to $1,000 would lower the premium by almost a third to $717--an annual savings of $299.

Meanwhile, the policyholder’s risk has increased by only $750--the difference between the old deductible and the new one.

The average homeowner files a claim just once every eight to 10 years, according to insurance experts.

Hunter, who raised the deductibles on his own insurance policies, cautions that policyholders who aren’t flush with cash need to be disciplined enough to sock away the money they save on premiums. Otherwise, they could end up with an insurance claim--and a higher deductible--that they’re ill-equipped to pay.

Hunter created a “casualty account” in which he sets aside the money he saves because of the higher deductible on his homeowners policy. He taps this account whenever he has a costly home repair, effectively self-insuring his minor losses.

“I’ve become my own adjuster for minor claims, and I have to say, I give myself excellent service,” Hunter quipped.

Here’s how that strategy would work using the sample policy cited above. If this consumer opts for a policy with a $1,000 deductible rather than a $250 deductible, is an average risk and made a claim once every eight years, the savings between claims would be $2,392. Even after paying the higher, $1,000 deductible on a claim, the policyholder would end up $1,642 ahead. Because the difference in premiums is so large, this homeowner would end up ahead even if claims were made as frequently as once every three years.

Another benefit to setting up a deductible-savings account: As the account grows, policyholders can afford to raise their deductibles further, Hunter said. And there are even bigger savings available to those willing to boost their deductible to $2,500.

“The bigger change you make, the greater the savings,” he said. With the previous example, going to a $2,500 deductible would cut the premium to $594--a savings of $422, or 41% annually. However, to break even, this policyholder needs to go at least 5 1/2 years without a major claim because the risk has risen by $2,250--the difference between the old $250 deductible and the new $2,500 deductible.

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Finding Discounts

Discounts are another way to save on homeowners premiums, experts say. Not all insurers offer them, and they vary widely among insurers. Some, for instance, offer a discount to those without pets; others give a price break to nonsmokers because they’re less likely to burn down the house. Some common discounts:

* If both auto and homeowners policies are with the same company, the insurer typically will offer a multi-policy discount that can shave 5% to 10% off the cost of either one of those coverages.

* Deadbolts and security systems can reduce a premium by 5%, but the actual savings will vary based on location. In low-crime areas, the savings probably will be less. But in high-crime areas, these security measures may be required to get a policy, Moraga said.

* Fire suppression systems and tile roofs--both of which can make a house less susceptible to fire--can save a homeowner as much as 10% a year, Moraga said. In rural areas susceptible to brush fires, a fire-retardant roof may be required to buy a policy outside of the state’s high-risk insurance pool.

Pet-free families--or those willing to let their insurers take liability for dog bites off their policy--can save even more. Mercury Insurance will cut rates substantially for those willing to exclude the dog from the coverage.

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Shopping Around

It’s also important to go rate-shopping every few years, Hunter said. Even if you bought the least expensive policy five years ago, there’s no guarantee that your company still offers the best rates. In fact, insurance rates are based on each company’s experience with losses. If your company has suffered higher losses than others, it’s probably going to raise rates.

For example, premium increases this year range from 10% to 50%, said Don Griffin, assistant vice president at the National Assn. of Independent Insurers.

“Shopping is key,” Hunter said. “You can easily pay twice as much for exactly the same coverage from one company to another. Periodically, you need to take a look at the market and see if you’re still getting the best rate for what you need.”

Times staff writer Kathy M. Kristof, author of “Investing 101” (Bloomberg Press, 2000), welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy .kristof@latimes.com. For past Personal Finance columns visit The Times’ Web site at www .latimes.com/perfin.