Monday is recession day, Tuesday is mortgage day, and now, Wednesdays at Personal Finance Analyst are all about insurance! Did I hear a big ‘Yuck!’ out there? Shame! Insurance can be your friend if you understand it, and it doesn’t really take that much effort to understand it.

Take your homeowners policy for example. You probably think you are being gouged for no good reason, just because you own a home and therefore presumably have enough money to pay insurance premiums. The truth is, homeowners insurance is one of the best insurance deals going, and not only that, it is such a good deal that many property and casualty companies offer it as a ‘loss leader’ just to get your life and auto policy business.

The reason homeowners insurance is a good deal for you is the same reason it’s a bad deal for your insurance company. The premiums are low compared to the potential payout. For instance, I own a small house in Indiana that I pay about $400 a year to insure. Over the life of a 30 year mortgage that’s around $12,000 in premiums. But if that house were destroyed completely by a tornado, the insurance company would be obligated to pay out about $110,000 to rebuild the house itself, $82,500 for my property inside the house, $11,000 to rebuild the garage, and as much money as it took to keep me in a hotel or apartment until I could get back inside the house, for a total claim payout of almost a quarter of a million dollars. A quarter of a million dollars is not a bad return on a $12,000 cash investment.

In recent years, the pace of natural disasters has stepped up dramatically (particularly wildfires in the west and hurricanes along the eastern and southern coasts), and insurance companies have been looking for ways to protect themselves from undue exposure. That usually translates into much higher premiums, especially in those particular parts of the country. You can control your insurance costs, and you should, but you don’t want to do it in ways that are foolish or overly risky for you.

Here are some basic suggestions for keeping your coverage high and your premiums low:

1) Don’t move to a high risk area. It’s great to have a house facing the ocean in coastal Florida. Don’t expect to have that though if you aren’t filthy rich and you can’t bear the prospect of rebuilding that house every five or ten years. If you love the high desert in California or the southern Texas coastline, fine. But don’t expect your insurance company to treat the risk of writing a policy for you as though you lived in a field in Ohio. You wouldn’t run a business that way, and neither would they.

2) Carry a high deductible. The quickest and best way to shave dollars off of your homeowners premium is to carry the highest deductible you can afford. In some parts of the US, this dollar amount will be capped by state law. If you live in a low risk area and are carrying a $50 deductible on your homeowners policy, call your agent right this minute and increase that deductible to $1000. The days of filing small claims are long gone. You will not be using this policy unless your home burns to the ground, and you will be able to scrape up $1000 somehow if that happens, even if you have to charge it. Your savings from increasing your deductible alone can run into the hundreds of dollars each year.

3) Don’t file small claims. Somebody stole your lawnmower, a kid broke your front window with a baseball, six shingles blew off your roof during a recent thunderstorm; Well, take care of it yourself, leave your insurance company out of it. File even a single small claim and you may see your premiums go up by as much as 30% the following year. In other words, you get your $200 lawnmower replaced by your insurance company (minus that $50 deductible I just told you to increase–aren’t you listening?) and the very next year your annual premium goes from $573 to $880. Think of your homeowners policy as catastrophe insurance, because basically that is what it is. Use it for anything more than that and it will cost you.

4) Do check the replacement value of your home every year or two. Building costs are going up all the time, and so is the cost of building materials. Increasing your coverage from $220,000 to $275,000 may cost you an extra $50 each year, but isn’t that better than having to cough up $55,000 after a disaster because your home was under-insured? Call your agent if you add on to your home, make significant improvements, or if you just haven’t reviewed the policy in over five years.

5) Don’t forget liability coverage. Your home policy automatically comes with coverage to protect you from lawsuits instigated by people who are injured on your property. This is your liability coverage. It pays for their injuries and your legal costs and lots of other things you wouldn’t expect like court costs and so forth. Most policies come with $100,000 of liability coverage automatically. It is very cheap to buy homeowners liability coverage. Increasing that figure to $500,000 or even $1 million is inexpensive and worth every cent, especially if your home is new. Sadly, the world is full of people looking for a sprinkler to trip over in a gated community, and you don’t want that sprinkler to be yours, at least not without proper liability coverage.

6) Read your policy! Look, I know you won’t, and you know I know you won’t, but on the off chance your home policy is lying on your kitchen table as you read this, stop for a moment and at least look it over. If you only have the ‘declaration page’ listing what coverages you have and how much each of them costs you, call your insurance company and ask them to mail you a copy of the long version that lays out all the conditions and exclusions and extras and so on and so forth. Forewarned is forearmed.

7) Shop around, but know your company. Back in the day, lots of shady little insurance companies went around selling policies that covered homes for only a fraction of what they were actually worth. Although this is illegal now, don’t switch to Acme Home Insurance to save $50 a year without talking to the big guys first. What you want in an insurance company isn’t just low rates, it’s assurance that the company can and will pay out in the event of a claim. Don’t lose sight of this and save money by going with a dinky carrier with a reputation for denying everything or making itself inaccessible.

Anyway, now that I’ve assured you that home policies are easy to understand, and I’ve given you some good advice on how to control your premium costs, I realize that homeowner policies are actually not that easy to understand. So OK, I lied a little. What did you expect from an insurance agent? I just didn’t want to scare you. Things are scary enough in the country right now, am I right?

I promise to redeem myself though next week, by going over some of the potentially relevant small print. Yes, there’s lots of it, I’m sorry, it’s true. Some of it can be bad, some of it is actually really good.

Until then, it’s summer. Go outside, cook on the grill. Try to relax. Stay away from your windows with that softball, and make sure you own a kitchen fire extinguisher.

See you next Wednesday.