Before you consider shopping for the best home insurance, and knowing the homeowners insurance discounts to save money, let me tell you the best way to use and think about your homeowners insurance to avoid problems and keep your rates low.

For insurance companies, homeowners insurance is not a big money maker — and in some years, a big money loser.

There are huge claim costs for insurance companies due to wild fires, tornadoes, and hurricanes. Insurance companies sell homeowners insurance because it helps them keep auto insurance customers. Some insurance companies, like Geico insurance and Progressive insurance, avoid homeowners insurance completely by partnering with other insurance companies and selling the partner company’s home insurance.

Unlike auto insurance, where auto claims can be frequent, the average for home insurance is 1 claim every 7 years. Many homeowners never place a claim.

The customers placing frequent homeowners insurance claims are a major expense for the insurance companies. So, many insurance companies offering home insurance will not sell it to customers with a non-weather related claim in the last 5 years. 1 theft claim will severely limit your choice of insurance companies.

In Oregon, for example, an insurance company cannot cancel your homeowners insurance if you have had no more than 1 claim every 5 years. But 2 claims in 5 years will most likely get your home insurance canceled. For those customers not canceled, placing claims will significantly increase your rates, and it will make it difficult, if not impossible to switch to another insurance company.

The best way to think of your homeowners insurance is as protection for catastrophic events that would cause you to have a very large financial loss.

Although a thief breaking into your home and stealing $5,000 of your personal items is traumatic and costly, it will not bankrupt you.

Your $300,000 house burning to the ground can bankrupt you, if not for having home insurance.

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To save money on your insurance, take the largest deductible you can afford. The deductible is what you pay before your insurance pays, and the larger the deductible, the lower the cost of your insurance.

For example, if you have a $5,000 deductible, and you have a house fire costing $10,000 to repair, the insurance company will pay you $5,000. If you have a house fire and the cost to repair is only $4,500, the cost is lower than your deductible, and your insurance company does not pay you anything.

A lot of people say, “I pay for the insurance, why can’t I use it?” Your goal should be to never have to use it. That sounds like a nice deal for the insurance companies, huh?

Think of it this way: how can the insurance company stay in business if I pay $500 a year and they give me a check for $300,000 when my house burns down? Insurance companies can do it because most of their customers will not have a large loss.

Insurance works because many people pay a small amount to cover the losses of the unfortunate few. If everyone tried to get back in claims what they pay in premiums, insurance would be too expensive for anyone to afford. The people who truly win the insurance game rarely place claims and keep their insurance premiums as low as possible with a reputable insurance company.

I know many people find it hard to save money for a large emergency fund, and cannot afford a large deductible.

Some insurance companies offer guarantees to not cancel your home insurance policy for claims, or will not surcharge your policy for your first claim within a period of time, such as 5 years, for an additional premium. You definitely want to consider these options, when shopping for homeowners insurance, if you think placing less-than-large claims will be necessary for you.

Have you ever used your home insurance? Tell me about it. Please leave a comment on my facebook page. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.