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Residential Security System/Homeowners' Insurance Discount Connection

NCJ Number
Security Dealer Dated: (April 1993) Pages: 28-33
A J Buck; S Hakim; M A Gaffney
Date Published
6 pages
This article shows alarm-system providers how insurance carriers benefit from client alarm systems and how homeowners achieve a savings through alarm systems.
An average residential alarm system costs $2,200. If the homeowner finances the installation by a loan carrying 8 1/2 percent interest, and the life expectancy of a system is 10 years, then the annual payments are $327.36. If the marginal income is taxed at a rate of 34 percent, then the actual cost to the homeowner is about $218.24. The probability of being a burglary victim for non-alarm owners is .0113 greater than for alarm owners. With the average deductible being $500, the monetary savings that result from lower susceptibility to burglary is $5.70. Adding this figure to the discount on insurance for having an alarm system the homeowner saves $80.70 a year. Thus, the net cost to the homeowner for the alarm system is just $137.54 a year or $11.50 a month. Adding the monthly charge of approximately $20 for monitoring, the actual overall monthly cost to the homeowner is $31.50. If the objective of insurers is to minimize their own loss exposure, then the following three conditions must be satisfied to justify offering the discounts: burglar alarms should deter intruders, discounts should provide homeowners with the incentive to purchase security systems, and discounts on alarmed properties must allow profits for insurers. This article discusses how the conditions are fulfilled. 2 figures and 1 table