Refinancing your home is a great opportunity to take advantage of lower interest rates, but it’s also an ideal time to review your homeowners insurance. Whether you’re refinancing to reduce your monthly payment or to access equity in your property, this process might highlight opportunities to adjust your insurance policy for better coverage or lower costs. Here’s why reviewing your homeowners insurance during refinancing is important.
Shop Around and Get Quotes
When refinancing, it’s tempting to simply renew your existing homeowners insurance policy, but this is the perfect time to shop around for better deals. Insurance premiums are influenced by various risk factors that may have changed over time. For example, if your credit score has improved since you first took out your policy, you might qualify for a better rate with a different insurer. Additionally, changes in your neighborhood—such as a new fire station or lower crime rates—could lower your insurance premiums.
If you don’t want to spend time researching multiple insurance companies, an agent can help you compare quotes from various providers. They work with several insurers, saving you time and effort, and can find the best policy for your needs. When comparing policies, be sure to look at coverage limits, deductibles, and premiums to ensure you’re getting the best deal.
Review Your Coverage
As you refinance, the value of your home might have increased, especially if you’ve made improvements or if property values have gone up. It’s essential to check whether your current insurance policy reflects the current value of your home, including any renovations or additions. Homeowners insurance typically covers damage to your primary residence, but it’s important to verify that it includes any new structures, such as a remodeled kitchen or newly built garage.
When reviewing your coverage, make sure you’re familiar with the differences between replacement cost and actual cost coverage:
- Replacement Cost: This policy type pays to replace damaged or destroyed items at current market prices, regardless of their age or condition. If you’ve made significant investments in your home, such as remodeling your kitchen, replacement cost coverage will protect that investment. However, this comprehensive coverage typically comes with higher premiums.
- Actual Cost: Policies offering actual cost coverage pay only for the depreciated value of an item. For example, if your refrigerator is ten years old and it’s destroyed, the insurance would only cover its original value minus depreciation. While premiums are lower with actual cost coverage, you could end up paying more out of pocket if you need to replace damaged items.
During refinancing, it’s crucial to make sure that your insurance policy is sufficient to cover any potential damages to your home, including temporary housing costs (loss of use coverage) if your home becomes uninhabitable.
Consider Your Deductible
When you first purchased your home, you may have opted for a lower deductible to keep your out-of-pocket costs manageable. However, lower deductibles usually come with higher premiums. If refinancing gives you some extra funds, consider using that money to raise your deductible. A higher deductible typically results in lower premiums because you’ll pay more out of pocket in the event of a claim. If your financial situation has improved since you first took out your policy, this could be a good way to reduce your insurance costs.
Ask About Discounts
Many insurance providers offer discounts, but you might need to ask about them. For example, insurers often give discounts to policyholders who have been claims-free for several years. Loyalty discounts or bundling discounts—where you combine your home and auto insurance with the same company—are also common. By bundling your policies, you could save money on both. If you’ve recently made significant changes, such as purchasing a new car or your teenager starting to drive, check with your insurer about potential savings.
Conclusion
Refinancing your home is the perfect opportunity to review your homeowners insurance. With a bit of effort, you can ensure that you’re getting the right coverage at the best price. By shopping around for quotes, reviewing your coverage, considering your deductible, and asking about discounts, you can enhance your financial position while protecting your home. If you’re unsure about your coverage, talk to an insurance agent to ensure that your policy meets your needs and fits your budget.
