If you have a residential alarm system these days, intruders or a fire will first sound an alarm at your residence. Then it will 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.
It is not uncommon for home insurance providers to offer policy deductions for those willing to invest in a monitored alarm system. However, the amount of money you save - which may be up to 10% of your annual premiums - can still be overshadowed by the monitoring fees charged by the alarm company.
Insurance Company Deductions
A burglary happens approximately every 18 seconds in the U.S., with an average property loss of $2,251 per incident. 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. Insurance companies will usually not offer a discount an for audible alarm system without some form of central monitoring.
Exploring Cost vs. Deduction
Homeowners insurance, according to a Federal Reserve Board estimate, costs between $300 to $1,000 annually. Factors that influence this cost include the location of your home, rebuild/replacement cost, personal belongings in the house, age and construction of the house, roof condition and deductible amount. Assuming an average annual insurance cost of $650, a 10 percent discount on your homeowners insurance for a monitored alarm system saves you $65 each year. Monitoring costs range from $15 to $30 a month (phone-monitored) and $40 to $60 a month (GSM chip-monitored), substantially more than the insurance discount covers.
Understanding the 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.
I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.