BLOG | Insurance Insights — Proceed With Caution: Options For Lowering Your Insurance Premiums
By: Ken Fuirst and Jason Schiciano
Levitt-Fuirst Insurance
(TARRYTOWN) Our June/July Impact column – “Property Owners: It’s Your Turn for Big Insurance Premium Increases” – outlined the many factors combining to cause significantly higher insurance costs for all property owners, including owners of commercial buildings, apartment buildings, condominiums, cooperative apartments, and homes.
That column confirmed what most readers already know: Property insurance premiums, like so many other costs, are increasing, frequently by double-digit percentages. The logical next question for readers is: “what can I do to mitigate my insurance premium increase?” Here are some options to reduce insurance premiums – but proceed with caution! Implementing these changes to reduce your insurance premiums comes with risk, in particular, the potential for higher out-of-pocket expenses, if you have a claim. Ideas for personal insurance premium reductions are included at the end of this column.
INCREASE DEDUCTIBLES — Most property owners know that increasing deductibles results in a lower premium. When considering opting for a higher deductible, the premium savings should be considered over a multi-year period, along with other factors:
How does the savings amount compare to the risk for higher out-of-pocket expense in the event of a claim? Consider a hypothetical savings of $2,000 for increasing the Property insurance deductible on a condo, co-op, or office building from $5,000 to $10,000. Assume the $2,000 savings would be realized every year going forward during which the increased $10,000 deductible is maintained. If you have a $22,000 claim in the first year after increasing the deductible, the $2,000 savings is eliminated, and you will have to pay net additional $3,000 out-of-pocket ($5,000 additional deductible, less $2,000 savings) for the higher $10,000 deductible. But, if you only have one claim over a five-year period, you come out ahead by $5,000:
| 5-year savings for increasing deductible from $5,000 to $10,000 | $10,000 |
Additional out-of-pocket (at $10,000 vs. $5,000 deductible) for one $22,000 claim during 5-year period | $5,000 |
| Net 5-year savings for increasing deductible from $5,000 to $10,000 | $5,000 |
However, if the annual savings for increasing the deductible is only $600 ($3,000 over five years), and you have a large claim during the five-year period, you come out behind by $2,000.
Can you afford a higher deductible in a worst-case scenario? Worst-case scenarios are unlikely, but they can happen. What if severe weather results in your property suffering three large claims (each exceeding $10,000) during the first policy term with the higher deductible. Even with a $2,000 annual savings for increasing the property deductible from $5,000 to $10,000, you will pay $13,000 more out-of-pocket in one year. If the annual savings is only $600 for the higher deductible, you will pay $14,400 more out-of-pocket for three large claims in one year. Do you have the cash reserves to pay more out-of-pocket, due to a higher deductible, if you incur multiple large claims in one, or a few successive years?
If your property has a special Hurricane/Windstorm deductible, which is normally a percentage of the Building Limit (e.g., three percent), you can consider increasing the percentage to reduce the premium. Keep in mind that, depending on the value of your property, an increase from three percent to five percent can result in tens or hundreds-of-thousands of dollars in additional deductible expenses for a large hurricane/windstorm claim.
REDUCING OR ELIMINATING COVERAGES — We do not recommend reducing or eliminating insurance coverage, but if higher renewal insurance premiums present a financial difficulty, considering doing so may necessary.
Basic Property insurance (e.g. for fires, storm damage, pipe breaks, etc.) and Liability insurance (e.g. for lawsuits relating to injuries occurring at the property) are standard coverages, and are required by most mortgage companies. While lenders may require minimum amounts for the Building Limit, General Liability Limit, and Umbrella Liability Limit amounts, there may not be requirements for the amount, or placement, of other types of insurance, such as Flood (if the property is not located in a high-risk flood zone); Earthquake; and/or Sewer/Drain Back-up. If your policies currently include these “optional” coverages, then reducing Limits (e.g. reducing Sewer/Drain Back-up Limit from $1,000,000 to $250,000; reducing Umbrella from $50 million to $25 million; or eliminating (e.g. eliminating Earthquake coverage) will save on premiums. The premium savings for doing so may not be tangible (sometimes, only hundreds of dollars), but it may be worth inquiring about with your insurance broker. Reducing or eliminating coverages may result in uninsured claim exposures.
CHANGING CARRIERS — In this challenging, rising-rate insurance market, despite renewal premium increases, the incumbent carrier is usually the most competitive option, but sometimes an alternate carrier offers premium savings. Before opting for the lower-cost option, be sure that
you obtain a detailed side-by-side comparison of the two options. The lower-cost option may be less expensive only because it contains less coverage, more exclusions, more restrictive terms, higher deductibles, etc.
Keep in mind, a new carrier will typically do an onsite initial inspection of the property. If critical repair projects (such as roof repair or brick pointing) or life-safety/liability issues (such as uneven sidewalks or electrical fuses) are discovered, the new carrier may require prompt repairs. Failure to address these required repairs could result in policy cancellation on short notice.
PERSONAL INSURANCE CONSIDERATIONS — For homeowners/unit-owners insurance, the previous concepts generally apply. in addition:
- Learn what home features qualify for premium credits, and consider adding these features (e.g. central-station fire/burglar alarm; monitored water leak detection system; automatic water leak shut-off; permanently installed back-up generator; lightning protection; gated community; etc.) If your home has such features, confirm your broker/carrier has applied the associated credits.
- Are certain coverage Limits too high, such as those for “Contents” or “Other Structures”? You may be able to reduce unneeded coverage to save on premiums.
- There may be other opportunities for savings through other policies, such as Auto and/or Valuable Articles insurance. Consult with your broker.
The Proper Approach
Remember, proceed with caution…
- Increasing policy deductibles reduces premiums, but could end-up costing you more, depending on claims frequency and severity.
- There is risk involved with reducing or eliminating insurance coverage, including large unplanned out-of-pocket expenses from insufficient claim coverage or excluded claims.
- If you are considering a change of carriers, make sure you have sufficient detailed information to compare the incumbent to the alternate option, and make an informed decision.
If you have questions concerning how to reduce your insurance premiums, contact your insurance broker, or Levitt-Fuirst Insurance at (914) 457-4200.
Levitt-Fuirst Insurance is the Insurance Manager for The Builders Institute (BI)/Building and Realty Institute (BRI) of Westchester and the Mid-Hudson Region. Ken Fuirst and Jason Schiciano are co-presidents of the company. The firm is based in Tarrytown.