Striking a Balance: Are You Paying for Too Much Insurance?

Saving money on homeowners insurance can often take a back seat.

Many homebuyers fail to comparison shop for the best policies, potentially missing out on a better deal elsewhere.

That means some may sign off on a policy that leaves them paying for more coverage than necessary to rebuild their home, or with too little coverage for antique furniture and other valuables.

"A lot of people go to one agent and they say 'I've shopped,'" said Bob Hunter, director of insurance at the Consumer Federation of America. But there's no guarantee the agent will connect a homeowner with the most affordable insurance carrier, Hunter added.

Striking a balance between buying enough insurance to protect perhaps your biggest asset and keeping costs in check is feasible. Here are 4 steps you can take toward that goal.

1. BREAK IT DOWN

The first step to identifying possible savings is to understand how the typical homeowners insurance policy is set up.

Take a single-family house without any other structures on the property. Generally, a policy for such a home will have three main coverage areas: the structure, the owner's personal belongings and liability against someone being injured on the property.

If the homeowner is paying off a mortgage on the home, the lender will require they carry insurance to cover the costs to fully rebuild the house. This will typically be the most costly component of the policy. Keep in mind that you're only paying to cover replacement costs for the structure, not to recoup the market value of the home and land it's built upon.

The second coverage area involves personal belongings such as furniture, housewares and rugs. Certain items, such as jewelry, a stamp collection and firearms, among others, will have coverage caps.

Another big component of homeowners insurance is liability coverage. This is meant to shield you should you be sued by someone who gets hurt on your property.

Beyond these categories, a homeowners policy can incorporate coverage for a host of other risks, or add-ons for coverage above caps.

Your costs will also depend on what part of the country you live in, the projected expenses to rebuild your home, how much coverage you purchase and your deductible, among other factors.

2. SIZE UP COVERAGE NEEDS

Your insurance costs depend largely on how much coverage you buy or are willing to do without.

Your insurance company will come up with the amount of coverage needed to fully replace your house and recommend you insure it for that amount.

Because construction costs are always changing it's a good idea to review your policy annually to make sure your coverage hasn't fallen below 80 percent of the cost to replace your home, suggests the National Association of Insurance Commissioners.

Homeowners get more leeway to select how much insurance they want to gird against liability and personal property losses. The less coverage, the more you save on premiums.

A detailed inventory of your belongings will help you determine how much coverage you need for your personal belongings. And if you need to buy additional protection beyond any policy caps.

"We don't want to think of insurance as a maintenance policy. It's really meant for the bigger things that would really devastate us financially," said Laura Adams, senior insurance analyst at Insurancequotes.com, an insurance comparison website. "We really need to weigh that premium against that potential claim."

The NAIC has some guidelines for conducting an inventory and a worksheet here: http://www.insureuonline.org/insureu_getready_newhome.htm .

3. SHOP AROUND

Many homeowners reach out to an insurance agent who recommends one or more insurers. Another option is to search your state insurance department website. It will typically list pricing information for the biggest insurers.

When discerning which is the lowest-cost policy, make sure you're comparing the same coverage from carrier to carrier.

Hunter of the Consumer Federation of America also recommends finding a handful of the lower-cost carriers and then narrow them down further by checking their track record of consumer complaints on the NAIC website, https://eapps.naic.org/cis/ .

"You don't necessarily need to talk to an agent," Hunter said. "You can start by talking to an insurance company directly."

Even after you've been in your home a few years it pays to get quotes from other insurers and use it as a bargaining chip with your insurer to give you a better deal.

4. CONSIDER A HIGHER DEDUCTIBLE

A recent study by Insurancequotes.com found that raising the homeowners insurance deductible to $2,000 from $500 can lower the annual premium in the U.S. by 16 percent, on average.

A deductible is the portion that is paid by the homeowner on a claim before the insurance policy kicks in. Still, don't raise your deductible unless you have enough money saved to cover it in the event you have to file a claim.