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Buying

The Money-Saving Home Insurance Option No One Will Ever Tell You About

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people covering cracked house with money representing home insurance

Rainbows aren't the only things to follow a nasty spell of weather. As a homeowner, you might also notice an influx of storm-chasing contractors appearing out of the (water-soaked) woodwork -- often suggesting how badly you need a new roof or siding due to wind and hail damage.

This is known as cosmetic damage repair (and also "opportunistic contracting").

You probably didn't realize, though, that these eager home-repair experts may well be indirectly pushing up home insurance prices in your area. When several claims for this type of work are submitted in a single a region, the price everyone pays (including those who haven't filed a claim) can increase, because the insurer sees the region as having greater risk of additional claims.

"Hail damage is one reason Texans pay some of the highest annual home insurance premiums in the country," says Loretta Worters, vice president at the Insurance Information Institute.

There's nothing you can do about a widespread storm that damages several homes in your area and ultimately raises everyone's rates. But you can help curb your own annual home insurance costs with a little-known option called "cosmetic damage exclusion."

A storm of cosmetic claims

Claims for hail and wind damage have been responsible for roughly 40% of all home insurance claims in the past five years, according to the Insurance Information Institute. That's up from around one-third just five years ago. Many of those claims are believed to be for minor cosmetic repairs such as a few dimples in siding that, in some instances, homeowners were tricked into believing were way more urgent than they actually were.

Caveat emptor: "A contractor may misrepresent the extent of damage to shingles if a homeowner isn't present and reviewing the damage with him," says Billy Van Jura, an insurance broker in Poughkeepsie, NY.

Let's stop for a moment and be absolutely clear: Homeowners are well within their rights to submit a claim for cosmetic damage covered by a home insurance policy. Just know that you'll pay any applicable deductibles. And that these types of repairs are often not necessary.

Your home insurance company classifies dents, dimples, and dings in roof vents, shingles, or aluminum siding and fascia that do not compromise the structural integrity as "cosmetic damage" to a property, Van Jura says.

Cutting cosmetic damage coverage

In 2013, the American Association of Insurance Services created the cosmetic damage exclusion to protect consumers from scammers and try to keep home insurance rates affordable.

Available in nearly all states, this makes cosmetic damage coverage optional, allowing homeowners to decide if they want to foot the bill for cosmetic-only wind and hail damage -- which could run anywhere from a few bucks to hundreds or thousands of dollars. However, if the damage compromises the integrity, safety, and/or structural functionality of the house, the home insurance policy will take effect.

The savings can be significant.

Excluding cosmetic damage could drop the annual premium anywhere from $100 to $200 or more, says Troy Thompson, an independent insurance broker with Pinnacle Insurance Agency in Coon Rapids, MN. The savings varies based on factors such as your state, value of your home, and coverage amounts.

Most insurance carriers allow policyholders to opt out of cosmetic coverage, but Van Jura suggests shopping around and talking to two or three different carriers to fully understand the potential savings and risks.

"Ask your insurance agent or broker if this is an option, and what the savings would be," he says. But, of course, if you opt for the exclusion, you can't change your mind if you need to file a claim.

"Excluding cosmetic damage means you must be prepared to pay for repairs yourself," Van Jura says.