Home Insurance ‘Loyalty Tax’: How Staying With Your Agent Is Draining Your Wallet

Once you find a product or service that meets your needs, it’s only natural to stick to it. Doing so, however, can cost you. 

While “loyalty tax” may affect many aspects of life, it’s particularly relevant in the home insurance industry. If you’ve been with the same insurer for years, you may be paying more than you need to. 

“I've heard homeowners proudly say they've been with the same insurance company for 20 or 30 years and have never filed a claim," says Jennifer Taylor, CEO of Claim Ready in Macon, GA. "They assume that loyalty means they're getting the best possible rate, but that isn't necessarily true."

By understanding that being loyal could actually increase your home insurance premiums and that by comparing your options regularly, you can avoid overpaying for coverage and ensure it still meets your needs.

Why auto-renewing can cost you 

Loyalty tax is a lot like renting a storage unit. 

“New customers may get an attractive introductory rate, while longtime customers see their rates increase over the years,” Taylor explains. 

The company knows those existing customers are accustomed to staying and may be less likely to shop around.

Insurance can work similarly in some cases.

“A carrier may increase premiums at renewal, and the homeowner simply accepts the increase because they’ve been with that company for years,” says Taylor. 

This is where price optimization comes in. It’s when an insurer considers how likely you are to tolerate a rate increase when setting a premium, rather than basing it solely on the risks you (and your home) present. 

And when you auto renew, home insurance stays out of sight, out of mind. If the renewal just happens, you’re likely to move on with your daily routine without considering whether you could find cheaper coverage elsewhere. 

Even though some insurance companies offer loyalty or claims-free discounts to lure you in, that doesn't mean you're getting the most competitive rate. The only way to know is to shop around and compare your options.

Ways to keep home insurance costs in check

The best way to combat the loyalty tax is to perform an annual insurance policy review. 

“When you do this, your goal should be to find the best combination of coverage, price, and carrier quality, not simply the lowest premium,” explains Taylor.

Bundling your policies may save you money, but it’s not always the most affordable choice. 

Ideally, you’d shop around and compare quotes from multiple insurance companies or work with a reputable independent insurance company who can do so on your behalf. 

As you do your research, make sure you’re comparing apples to apples. A lower premium may look attractive, but you could be giving up important protections. 

“You also need to consider whether your policy has kept up with changes to your home. Have you made renovations? Has the cost of rebuilding increased? Has your dwelling coverage been adjusted to reflect those changes,” Taylor explains. 

In some cases, increasing your deductible could help lower your premium without reducing your coverage limits. Just make sure the deductible is an amount you could comfortably pay if you had a claim, without having to wipe out your savings or go into debt.

Erika Tortorici, owner and principal of Optimum Insurance Solutions in South Hamilton, MA, agrees with the importance of shopping around but recommends looking for a new policy every three years. 

“This is often when introductory discounts have started to expire, and consumers may become eligible for new customer discounts with another carrier,” Tortorici explains. 

Don’t let lower premiums leave you underinsured 

The rising costs of homeownership can be frustrating, especially when you’re paying for insurance year after year without filing a claim.

However, Taylor believes you should purchase home insurance as though you are going to have a claim. After all, that's why you have it in the first place.

“I know some homeowners only think about insurance because their mortgage company requires it. However, choosing a cheaper policy with less coverage to save a few hundred dollars a year could leave you facing tens of thousands of dollars in unexpected expenses when something happens,” explains Taylor. 

“Insurance is one of those things you hope you never need, but when you do, you want to know you have the protection you thought you had,” Taylor adds.