A Cheaper Way To Protect Hearth And Home

To meet the deluge of claims from natural disasters, many insurers are raising homeowners' premiums. All the more reason to look now into coverage that could save years' worth of annual payments.

It's called perpetual homeowners insurance, and it works like regular homeowners' coverage except that instead of paying a yearly premium, consumers pay a lump sum that's typically 10 times the annual amount. If the yearly premium on a $100,000 home is $300, the perpetual policy would be $3,000.

ONE CHECK. After the onetime deposit, perpetual insurers require additional payment only if the replacement value of the home rises. But, unlike conventional policies, inflation won't affect the price. To cover administrative costs and claims, the insurer invests the lump sum. The interest earned is not taxable to the policyholder. If you sell your home or cancel the insurance, the deposit is refunded.

The real advantage of perpetual insurance is that if you invested the $3,000 yourself, it would be hard to get the 10% return--before or after taxes--needed for a $300 yearly premium. So you come out ahead by giving the money to the insurer. The biggest problem may be qualifying. John Snyder, a senior vice-president with insurance rating agency A.M. Best, says perpetual insurers "generally only insure the preferred homeowner" likely to file few claims.

MORTGAGE HELP. At least a dozen insurers offer the coverage, including Mutual Assurance, Cincinnati Equitable, Baltimore Equitable, and Philadelphia Contributionship. Mutual recently launched a marketing campaign of its perpetual policies in Pennsylvania, New Jersey, Delaware, Ohio, and Maryland, and it wants to extend the coverage countrywide.

One drawback: You have to tie up a lot of money for years. And, after buying a house, many people can't spare the cash. A solution is to add the cost of the insurance to your mortgage loan. The annual payments, when reduced by the tax savings on interest paid, are still less than conventional premiums. You build the cash value in the policy as you pay off your mortgage. The insurance portion goes directly from the lender to the insurer. If you cancel before you pay off the loan, you only get back the sum that has


So in addition to refinancing your mortgage, you have another way to cut the cost of owning a home. You can always channel the savings into building that new family room.

      POLICY ON A $160,000 HOME
      EConventional                        $14,280
      ($476 annual premium
      x 30 years)
      EPerpetual single-                    $4,940
      deposit policy
      EPerpetual policy if                  $9,665
      financed through
      mortgage over 30 years*
      *Assumes a 7.5% mortgage rate and a 31% tax deduction on the interest         DATA: THE GREEN TREE INSURANCE CO.