Downsizing? You May Save on Your Homeowners Insurance
By Dan Rafter
Your children have moved out, and that single-family home you’ve lived in for years suddenly looks too big. You’ve decided to downsize to reduce your housing costs.
Here’s a bit of good news: Not only can downsizing to a smaller residence leave you with lower utility bills and a smaller monthly mortgage payment, it might also result in a lower homeowners insurance premium. And if you make the move from a single-family home to a condominium unit, you might be reducing your insurance payments by an even greater amount.
Consider it one additional financial benefit of reducing the footprint of your home.
However, this isn’t a guarantee. Yes, moving to a smaller home usually means a lower homeowners’ insurance premium. But there are times, depending on your new home and the area in which you move, that your monthly premiums could rise, even if your living space is falling.
Switching to condo living could pay off
Moving from a single-family home to a condo can result in a sometimes dramatic decline in insurance premiums, as condo insurance is usually much cheaper than traditional homeowners’ insurance. It makes sense that your premiums would shrink if your condo is smaller than your single-family home; you have less space to insure.
But Maria Townsend, an insurance broker in Greensboro, North Carolina, says that it’s not just the smaller space that reduces your premium. When you move into a condo, you are only responsible for insuring the interior of your unit, something that requires far less coverage.
The building’s exterior and common areas? That is no longer your responsibility. The insurance policy purchased by your condo board or homeowners’ association covers those areas. You also don’t have to worry about liability if someone is injured walking up the front sidewalk to your condo or in your building’s common areas. The policy purchased by your homeowners’ association provides that protection.
Of course, you will pay for that insurance through your monthly association fees. But it will leave you with what is usually a smaller monthly homeowners’ insurance payment.
“With homeowners’ insurance you are responsible for everything, such as the building structure, the land it sits on and other structures on the property,” Townsend said. “Once you downsize to a condo, you don’t have to worry about being liable for injuries that occur on the land near your residence.”
Size is only one factor
It's important to remember, though, that a home's size is only one factor that determines home insurance premiums, said Stefan Tirschler, product and underwriting manager with Phoenix-based Square One Insurance Services.
While it's true that downsizing to a home with less square feet will generally cause your premium to fall, you might also pay less because of the other changes that come with moving into a smaller space.
When you downsize, the odds are high that you'll get rid of items that you no longer have room for or no longer need, Tirschler said, an additional factor that could result in smaller homeowners’ insurance premiums.
"This will directly impact the amount of coverage that you need for things like personal property, bikes, sporting equipment and even landscaping," Tirschler said.
When you own a larger home, you might also have outbuildings, hot tubs, pools and other structures such as fences that need to be covered by your homeowners' insurance policy, Tirschler said. If you move to a smaller residence, those hot tubs, pools and other outbuildings might no longer exist.
When premiums might increase, even after downsizing
But there are times when moving to a new home could result in higher premiums, even if you are downsizing to a smaller space.
Say you move from a single-family home to a condo. If that condo comes with luxury furnishings, you might have to purchase higher insurance limits to cover these high-end features, Tirschler said. The more coverage you need to buy, the higher your premium will be.
Location matters, too. If you move to a home located in a hurricane zone or in an area prone to earthquakes, you might need to pay more in homeowners' insurance even if you are moving to a smaller space, Tirschler said.
"In the end, whether your homeowners' insurance will increase or decrease depends on your 'before' and 'after' circumstances," Tirschler said. "It's important to discuss these changes with your home insurance provider when making plans."
Stacey Giulianti, co-founder and chief legal officer with Florida Peninsula Insurance in Boca Raton, Florida, said she has seen clients who downsize only to see their insurance premiums rise instead of fall.
"While it might seem logical that moving to a smaller place would reduce the cost of a typical homeowners' policy, the opposite might occur," said Giulianti. "A smaller home might be built to newer, higher standards, which cost more to repair or rebuild."
Insurance premiums are based in part on the cost to rebuild a dwelling. Because of this, the higher quality of a residence might result in higher premiums even if that residence is a smaller one, Giulianti said.
Your rates might increase, too, if you move closer to one of the coasts or another body of water. The distance from the coast is a factor in rates, Giulianti said.
Then there are the less obvious changes. For instance, moving farther from a fire station, leaving your new home in what is known as a "lower protection class," could also boost your insurance premiums, even if you are moving to a smaller residence, Giulianti said.
"Don't assume that moving into a smaller home means rate savings," she said. "Check with a reputable insurance agent first and get all the facts."