Increasingly, residential alarm systems that warn of intruders or fire sound an alarm at the residence and send a signal through your phone line to a central monitoring station. Operators at the station then contact your police or fire department. While some debate how well these systems protect people and their property and whether that protection is cost-effective, most insurers give homeowners a deduction for having them in place.
Insurance Company Deductions
State Farm Mutual Insurance Company cites a Federal Bureau of Investigation statistic that a burglary takes place every 14.6 seconds in the U.S. The insurance company also notes the average loss per claim is $3,921. To encourage the installation of alarm systems, most insurance companies give you a deduction on your homeowners insurance for installing and maintaining an alarm system with some form of central monitoring. These deductions can be for as much as 20 percent but are often for less.
Central Monitoring vs. Audible Alarm
To obtain the maximum discount offered by your insurance company, your alarm system must include central monitoring that connects to emergency services. When an intruder enters, it triggers an audible alarm at your house, and the system sends a signal to the alarm company's central monitoring facility. Monitoring personnel usually call you first; if there's no response or you confirm the intruder, the monitor notifies the police or fire department. A less expensive system with monitoring that contacts you but does not notify the police or fire departments may earn some discount, but it will be less. State Farm Mutual, for example, offers up to 15 percent for a preferred system with central monitoring that includes notification of emergency personnel but only up to 7 percent for a system with central monitoring that notifies only the homeowner. Insurance companies will usually not offer a discount an for audible alarm system without some form of central monitoring.
Cost vs. Deduction
Homeowners insurance, according to a Federal Reserve Board estimate, costs between $300 to $1,000 annually. Assuming an average cost of $650, a 10 percent discount on your homeowners insurance for a monitored alarm system saves you $65 each year. Monitoring costs average about $30 a month, substantially more than the insurance discount covers.
Cost vs. Benefit
Unsurprisingly, insurance industry spokespeople advocate these systems. It's uncertain, however, that a monitored alarm provides a significant deterrent or helps catch burglars. Police response times are often slow, and burglars have adjusted to this, making sure to get in and out of the home faster. If the benefit of the alarm system is uncertain, the monthly monitoring fee might not be cost effective, even considering the break on your homeowners insurance. Nevertheless, despite slow response times and imperfect monitoring systems, you may conclude that for a net cost of $300 to $400 each year, a monitored alarm system increases your peace of mind.
- State Farm Mutual: Automate Your Home and Protect Your Family -- Save Money Too.
- AgentInsure: Monitored Alarm Systems Can Reduce Homeowner Insurance Rates up to 20 Percent
- The Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings
- MSNMoney: 14 Reasons Monitored Home Security Isn't Worth It
- The New York Times: Weighing the Value of a Home Security System
- Forbes: Six Insurance Tips For Homeowners
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