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Smart Home Insurance Savings Tips for Homeowners and Renters

Laura interviews Melanie Musson from Clearsurance.com about how to use smart home technology to protect your property and save money on home and renters insurance.

By
Laura Adams, MBA
7-minute read
Episode #699
The Quick And Dirty

When disaster strikes, you're the victim of theft, or you get involved in a lawsuit, having a home or renters insurance policy can be a financial lifesaver. Fortunately, there are ways to cut the cost of protection and make your home safer, including using smart home devices.

Smart home technology is changing the way we live and can even save money. By connecting one or more smart home devices to apps on your smartphone, you can control various appliances, security features, and utilities. 

Whether smart technology allows you to monitor water leaks, who's at your doorstep, your air conditioning and heating, sprinkler system, window coverings, lighting, or power use, it can make your life easier and make you appear less risky to your home insurer.

To discuss what homeowners and renters should know about using smart home devices to save money, I interviewed Melanie Musson. She's a home insurance expert with Clearsurance.com, an insurance comparison site.

We cover lots of money-saving tips, including:

  • How to know if installing a smart home device can pay off in the long run

  • Tips for managing insurance when your home's value is rising

  • Various ways you benefit from using smart home devices

  • Types of devices that save the most on insurance and protect your property

  • Which insurers offer the best smart home device partnerships

  • The difference between replacement and cash value home and renters coverage

  • Tips to be a savvy insurance shopper and get more coverage for your money

Listen to the interview using the embedded audio player or on Apple Podcasts, Audible, Stitcher, and Spotify.

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5 Tips Every Homeowner and Renter Should Know About Insurance

  1. Not every type of damage is covered.
  2. Certain belongings have low coverage limits.
  3. There's a big difference between cash value and replacement cost.
  4. There are special disaster deductibles.
  5. There are ways to reduce your insurance cost.

Here's more information about each insurance tip.

1. Not every kind of damage is covered

We’ll cover the protections you get with home and renters insurance and the expressly excluded damages. A basic homeowners policy pays for these types of claims:

  • Dwelling coverage pays to repair or replace the property that gets damaged due to a covered disaster, such as a fire, tornado, hail storm, or windstorm. 

  • Personal property coverage pays to repair or replace your belongings, such as furniture, electronics, clothing, and jewelry, up to policy limits, after a disaster, theft, or other loss.  

  • Liability coverage pays if you get involved in a lawsuit.  

  • Additional living expenses coverage pays for your hotel stay and meals, up to limits, if you can't live in your home after a covered disaster.  

If you're a renter, you also need insurance. Your landlord probably has insurance for the actual structure of your rental, but they typically don't insure your personal belongings. 

Renters insurance gives the same protections as a homeowners policy, minus the dwelling insurance. You get coverage for your personal belongings, liability, and additional living expenses. 

Unfortunately, about half of renters don't have renters insurance. Many mistakenly believe that their landlord would pay to repair or replace their damaged or stolen possessions. Or they think a renters policy is too expensive. The good news is that a typical renters policy is affordable, costing just $179 per year (or about $15 a month) on average across the U.S.

While home and renters insurance gives you significant coverage, it doesn't extend to all natural disasters. Some are expressly excluded, such as earthquakes and flooding from groundwater.

If you live in an earthquake-prone area, you can typically add earthquake coverage to a home or renters policy. But flooding is a different category of insurance that you must purchase separately. 

Flooding gets handled differently than other types of disasters because it's the nation's most common and expensive disaster. Floods can happen anywhere, and they don't even have to be catastrophic to cause significant damage.

If your town or community participates in the National Flood Insurance Program, you can buy flood insurance for your rental or your home through that program. And if you buy a home in a designated flood zone, mortgage lenders typically require you to have flood insurance.

Even though the federal government backs flood insurance, it's brokered by regular insurance companies or agents. You can learn more at floodsmart.gov. Most flood policies have a 30-day waiting period, so you can't wait until a storm is bearing down on you to sign up. You'd be too late.

Remember that water damage from rain, high winds, or a tree that fell on your roof gets covered by a standard home or renters insurance policy. But damages to your home or personal belongings that occur due to rising groundwater are never insured, except when you have flood insurance.

Also, note that you typically need business insurance if you have a home-based business with inventory, specialized equipment, or customers who enter your property. Likewise, if you turn your home into a rental, Airbnb, or vacation property, you generally need additional coverage or a landlord insurance policy.

With both home and renters insurance, your belongings are insured outside of your home, known as off-premise coverage. For example, if your laptop gets stolen from your car or your vacation luggage gets lost, your homeowner or renters policy covers it up to your off-premises policy limits. 

2. Certain belongings have low coverage limits

In the same way that not every disaster is covered, not all personal belongings get protected with a home or renters policy. Some belongings, such as cash or bullion, aren't covered, and others come with caps.

For instance, jewelry, watches, furs, silverware, electronics, and firearms are typically limited to one or two thousand dollars. If you have jewelry that's worth $10,000 and it's lost or stolen, you'd come up very short with just $2,000 of coverage.

If you have items worth more than insurance coverage caps, you can add an insurance rider to expand protections for that specific item. This addition is known as "scheduling" your personal property. It costs more, but it gives your most expensive items separate coverage so you can replace them.

So, pay attention to the insurance limits for possessions inside and outside of your home. Consider adding a rider or property schedule to boost coverage when needed for valuable items.

3. There's a big difference between cash value and replacement cost

It can be a little confusing to know exactly how much money you'd receive from a renters or home insurance claim. So be sure you understand the different types of policies you can buy.

Actual cash value (ACV) coverage pays to repair or replace your property or possessions up to the policy limits, minus a depreciation deduction. In other words, it pays a percentage of what it would cost you to go out and buy the same item.

For instance, if your couch gets destroyed in a fire and you have an ACV policy, your coverage won't pay the cost to buy a new one. Instead, your insurance provider pays the couch's depreciated value, which could be pretty low. You'd have to pay the difference yourself. While an ACV policy is less expensive, it probably won't pay enough to rebuild your home or fully replace your personal belongings without paying out-of-pocket.

If you want more coverage, you need a policy with replacement cost value (RCV). It costs more than a cash value policy but would pay you enough to rebuild a similar home and replace damaged belongings.

There are also guaranteed or extended replacement cost policies, which give you even more protection. They pay to replace your home as it was before a disaster, even if it costs more than your policy limit.

Remember that a home insurance policy is based on the cost to rebuild your home and any outbuildings, not the amount you paid for the property or its appraised value. You never include the value of your land in home insurance coverage. Depending on your home's age, location, and construction quality, the insured value could be much higher or lower than its market value.

4. There are special disaster deductibles

A deductible is an amount you're responsible for paying for an insured loss. In general, the higher your deductible, the lower your premiums. So, get quotes for different deductible amounts when shopping for renters and home insurance. But also make sure you can afford to pay a higher deductible. 

In some high-risk areas, you may have separate deductibles for damage caused by certain disasters. According to the Insurance Information Institute, nineteen states (Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, and Virginia) and the District of Columbia, have hurricane deductibles. 

These special deductibles are additional and separate from the regular deductible for all other types of claims, such as fire or theft. A hurricane deductible applies only to damage from hurricanes. And a windstorm or hail deductible would apply only to damage caused by those disasters.

Hurricane and wind deductibles are a percentage that may vary from 1% to 5% of a home's insured value (but they can be even higher in some coastal areas). The amount you must pay depends on your insured value and the "trigger" event.

For instance, if you have a 3% hurricane deductible and your home is insured for $200,000, you'd be responsible for the first $6,000 ($200,000 x 3%) in repair costs. That's much more expensive than paying a standard $500 or $1,000 home deductible.

In some states, the triggering event for hurricane deductibles to apply is anytime a Category 1 storm causes damage, whether it made landfall or not. Other states have made Category 2 storms the threshold. In others, a hurricane deductible applies from the moment a hurricane watch or warning gets issued until 72 hours after it ends.

A hurricane deductible can only be applied once each hurricane season, from June to November.

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5. There are ways to reduce your insurance cost

When it comes to the price of renters and home insurance, some factors you can control and some you can't. To help you get the best price possible, here are some ways to save:

  • Bundling insurance is when you purchase various policies from the same insurance company, such as home and auto. Check that the combined price from one insurer is less than buying policies separately from different insurers.

  • Shopping around is critical because prices vary considerably from insurer to insurer. Compare home insurance quotes from at least three companies for the same coverage and deductibles.

  • Installing safety devices such as smoke detectors, alarm systems, deadbolts, storm shutters, shatterproof windows, weather-resistant roofing, and approved smart home devices make your property less risky to insurers.

  • Raising your deductible typically cuts insurance premiums. Just make sure that you can afford to pay it in the event of a claim. Also, the savings vary depending on where you live and your insurer, so get quotes with multiple scenarios.

  • Maintaining good credit is critical for getting lower rates on home, renters, and car insurance. Depending on where you live, having poor credit can cause you to pay double the premium compared to having excellent credit! California, Maryland, and Massachusetts are the only states that currently prohibit home insurers from using credit when setting rates.

  • Being loyal and sticking with an insurer for several years may qualify you for a significant discount. However, don't let that keep you from periodically shopping around to make sure you're still getting a good deal.

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.