Another Way to Look at Home Security and Insurance Costs
The possibility of a discount on homeowner’s insurance could contribute to a consumer’s decision to invest in home security. But insurance discounts are not significant enough to cover the cost of home security. Does that mean people should not consider the insurance implications of installing security equipment? No.
In fact, there is another angle to look at. We already know that insurance discounts aren’t steep enough to make a huge dent in the total cost of home security. But the other side of that coin is how much insurance would go up in the event of a claim. By preventing burglary and home invasion, a consumer avoids theft claims. He is getting a double financial benefit by preventing a rate increase and getting a bit of a discount on his current rate.
Claims Increase Annual Rates
The one thing common across all forms of insurance is the relationship between risk and cost. The higher the risk, the higher a policy’s premiums. This has everything to do with higher insurance rates after filing a claim.
Even a single claim elevates your risk potential in the eyes of your insurance company. That’s why your car insurance rates go up after an accident. Likewise, filing a claim on your homeowner’s policy will almost certainly lean to higher rates.
How much higher? That depends on your carrier. But according to a 2024 report from The Zebra, the average increase for a single theft claim was 20%. Rate increases after a second theft claim average 17%. In The Zebra’s example, a homeowner whose premiums averaged $1,478 prior to any theft claims saw his rate climb to $2,085 after the second claim.
The Question of Rate Reductions
Theft claims and rate increases must be compared against the potential discounts a carrier might offer on home security. While not all insurance companies offer such discounts, it has been estimated that those who do offer discounts ranging from 15%-20%.
Let us go with the high side at 20%. That is a 40-percentage point swing between a home security discount and the rate increase experienced after a theft claim. To me, it suggests that investing in home security makes good financial sense. If a home security system will prevent burglary and subsequent insurance claims, I can keep my insurance costs in check. Preventing increases while simultaneously getting a discount is a win.
Determining What to Spend
The next thing to consider is how much to spend on a security system. The previously mentioned example suggests a $300 rate difference between no claims and a single theft claim. If I combine that with a generous 20% discount applied to a $1,478 insurance premium, I save an additional $300 per year. So if I spend $600 or less on home security per year, I come out in the black.
I have to factor in how much I pay for the equipment upfront. If I want monthly monitoring services, I also need to consider the subscription fee. So let’s say I go with a provider like Vivint Home Security. Can I get a decent security system and monthly monitoring for less than $600 annually?
That’s a little tougher to work out because you pay upfront for the equipment and then keep it for several years. Averaging costs over 3-5 years would give a reasonable estimate, in my opinion.
When all is said and done, preventing burglary is the better way to look at the insurance question in relation to home security. By preventing burglaries and subsequent claims, I mitigate the bigger financial risk: rising insurance premiums.
