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3 Home-Protection Systems That Can Cut Your Insurance Premiums

April 21, 2017
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Since fires and burglaries are key catalysts for home-insurance claims, it makes sense that insurance companies offer discounts to those who install systems to mitigate against those threats.

Insurance savings alone may not justify the investment in such systems, since it would take decades to recoup your costs through lower premiums. Rather, the discounts applied to your homeowners insurance will help offset the cost of installing (and, in some cases, servicing) these systems, while also making your home safer and your sleep sounder, thanks to greater peace of mind.

Here are three systems that qualify you for reduced premiums, with details on what they cost and what you can save. One heads-up in the event that you have all three, or plan to install them: You might max out on your discounts. Some insurers limit the percentage a policyholders discounts can accumulate to. AIG, for example, limits what they call their “protection credit” to 15%.

A Central Alarm System

Homes with deadbolt locks and a local alarm – one that alerts only those in the immediate area – typically do not qualify for discounts. However, installing a central alarm system that notifies the appropriate agency of a fire or burglary, can make a policyholder eligible for a discount. The discounts for central alarm systems can be as high as 10% off of the cost of an annual home insurance premium. For example, say your annual homeowners insurance premium costs $1,000 and you qualify for a 10% discount ($100) because you have a central alarm system. Over the course of a year, that discount equates to less than $9 per month. Still, that covers anywhere from a fifth to a third of the monthly service fee for a central alarm system, which typically ranges between about $30 and $50. (There is usually a initial equipment or installation fee of roughly $100 as well.)

A Fire Sprinkler System

While common in multi-unit residences, sprinkler systems are rarities in single-family homes; the Fire Protection Research Foundation reports that fewer than 2% of one- and two-family homes in the U.S. have one. Yet the systems are highly effective in mitigating the risk of property damage, injury and death, and insurance companies almost always offer discounts to insure homes that have sprinklers installed. And they’re hefty discounts, too, running as high as 10% of premiums. While expensive to install (the average cost in 2013 was $6,026, according to the National Fire Protection Association), sprinklers, unlike alarms, require no monthly service fee. Those are key reasons that a sprinkler system could eventually pay for itself, although it likely won’t happen during your lifetime in the home.

For example, say you have a fire sprinkler system and qualify for a 10% discount on a $1,000 annual premium. With policy savings of $100 per year, it’ll take a little more than 60 years to pay for itself assuming everything else is constant–and without even considering the upfront cost of installation. (One further caveat about that installation cost: the $6,026 figure, based on an average of $1.35 per square foot in a typical home, reflects the tab a system installed as the home is being built. Adding a system in a home that has been completed would cost even more because of structural obstacles, such as opening portions of the walls.) A common concern for those unfamiliar with residential fire sprinkler systems is that once the system in activated, all of the sprinkler heads will drench a home and the belongings inside. This isn’t the case. Each individual sprinkler head is activated by change in temperature, usually spraying water when it detects heat between 135 and 165 degrees Fahrenheit.

A Lightning Protection System

A bolt of lightning can deliver as much as 30 million volts of electricity which can easily destroy a home, electronics and appliances inside, and possibly start a fire. There were 99,871 paid lightning claims in the U.S. in 2014, costing insurance companies an average of $7,400 per claim, according to the Insurance Information Institute. Still, discounts for lightning-protection systems are modest, at no more than 3%, as a rule.

Those slender discounts, along with system costs of between $1,500 and $4,200, leave the least chance of any of these systems that insurance savings will repay your investment.

For example, say your home insurance premium is $1,000 per year and you qualify for a 3% discount after installing a $3,000 lightning protection system. That means you would save $30 per year and it would take 100 years for the savings to equal the system’s cost.

The article 3 Home-Protection Systems That Can Cut Your Insurance Premiums originally appeared on ValuePenguin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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