When I was able to afford to buy a home, I looked very carefully at what the insurance broker was offering me in terms of coverage. He gave me what he considered a standard package that most customers just accepted. I just about took that policy but decided to ask the first question. Do I need really need this? Four hours later, the broker was exhausted after explaining every detail of the policy and I mean every detail! I left that meeting refreshed, knowing that I had saved a fortune by simply asking.
You see, I live in a city where it snows but we rarely have major snowfalls. However, hidden in the policy was an option to be covered for damage due to the weight of snow on the roof. That cost was $77/year.
Also hidden in the policy was coverage for water damage. In fine print, it said that they would cover damage due to normal rainfall but not damage due to continuous seepage from an extended period of rainfall. They would also not cover damage due to a flood. That's just plain crazy. Why would I want water damage insurance for anything other than excessive rainfall and flooding? That cost was $31/year.
I declined both premiums to save $108/year.
The policy also had this cryptic description of "Property Insurance Option 3 premium". I asked what Option 3 meant and they told me that it included coverage for several thousand dollars worth of jewellery and artwork. I declined that coverage and dropped it down to Option 2, which saved me $54/year.
My Total Savings
My total savings was $162/year. That may not seem like much. But you should make sure you are sitting down to read this because I'm going to floor you with the next calculation.
Each year home insurance goes up an average of 5% per year. If I had taken that extra insurance for $162, the next year it would have cost me $170. But what if I took that $162 and put it in the bank to earn 5% interest? And then the next year I could have put $170 into that same account to earn 5% on the combined amount. I would have saved $357. That's called the magic of compounding interest. If I did that year after year for as long as I owned a home, here's how much money I would save:
- $2,262 over 10 years
- $7,778 over 20 years
- $19,338 over 30 years
- $42,361 over 40 years
- $86,694 over 50 years
Let me repeat that. I would save an astonishing $86,694 over 50 years of home ownership, by simply daring to ask questions. Spend a few hours of your time to question everything you are paying for in your home insurance policy. Slash any items that don't make sense to you. In my case, my four hours effectively paid me $21,673.50 per hour!
Now that's what I call making money by saving money!