Homeowner’s Insurance

Rising Homeowner’s Insurance Is Affecting Affordability

~ bwebster

For homeowners with mortgages, rising insurance premiums pose a unique and unavoidable challenge. Unlike those who own their homes outright, mortgage holders are required by their lenders to maintain adequate homeowners insurance. This ensures that the lender’s investment in the property is protected in the event of a disaster, but it leaves homeowners with little choice but to absorb the increasing costs.

Between 2020 and 2023, insurance premiums surged by about 20%, and in some high-risk areas, the increases are even steeper. For many, this spike has strained household budgets, adding to the already heavy financial burden of rising interest rates, property taxes, and maintenance costs.

Several factors contribute to these rising costs:

  • Climate Change: The increasing frequency and severity of natural disasters, such as hurricanes and wildfires, have resulted in higher claims, prompting insurers to raise premiums or withdraw from high-risk markets.
  • Construction Costs: Between 2020 and 2023, construction input prices rose by 37.7%, with machinery costs increasing by 12% from 2022 to 2023, leading to more expensive claims for insurers.
  • Regulatory Challenges: In some states, regulatory environments have hindered insurers’ ability to adjust rates in line with escalating risks, causing some companies to exit these markets.

Unfortunately, dropping coverage isn’t an option for mortgage holders. If a homeowner fails to maintain adequate insurance, the lender may purchase a policy on their behalf�often at a much higher cost�adding it to the homeowner’s monthly mortgage payment. This arrangement, known as “force-placed insurance,” typically provides less coverage at a premium rate, compounding the financial strain.

What Can Homeowners Do?

Homeowners feeling the squeeze have several strategies to mitigate the impact of rising insurance costs:

  • Shop Around: Compare policies from multiple insurers to find the most competitive rates.
  • Bundle Policies: Many companies offer discounts for bundling home and auto insurance.
  • Increase Deductibles: Opting for a higher deductible can lower monthly premiums, though it means paying more out-of-pocket for claims.
  • Explore State Programs: In some states, government-backed insurance programs may offer affordable options for high-risk homeowners.

A Call for Broader Solutions

While individual strategies can help, the broader affordability crisis requires systemic solutions. Climate change mitigation, regulatory reforms to stabilize insurance markets, and efforts to control construction costs are all critical to easing the financial burden on homeowners.

If you’re buying a home or already dealing with the strain of rising insurance costs, reach out to your insurance agent or lender to review your options, stay compliant with mortgage requirements, and safeguard your home and financial well-being.

Homeowner’s Insurance – What You Need To Know

~ bwebster

Homeowner’s insurance is a must-have to protect what’s probably your biggest investment – your home. And while you never want to think about worst-case scenarios, the right coverage is basically your safety net if something goes wrong. Here’s how it helps you.

  • Covers Repairs and Rebuilding Costs: If your home is damaged by fire, storms, or other covered events, your policy helps pay for repairs or even a full rebuild.
  • Protects Your Belongings: Many policies can also cover personal items like furniture, electronics, and clothing if they’re stolen or damaged.
  • Provides Liability Coverage: If someone gets injured on your property, homeowner’s insurance can help cover medical bills or legal expenses.

In the simplest sense, it gives you peace of mind. Knowing you have protection against unexpected events helps you worry less. And with such a big purchase, having that reassurance is a big deal.

And while your first insurance payment will be wrapped into your closing costs, you’ll want this to be a part of your budget beyond closing day too. That’s because it’s a recurring expense you’ll have once you get the keys to your home.

Here’s what you need to know to help you budget for this important part of homeownership today.

Costs and Claims Are Rising

In recent years, insurance costs have been climbing. According to Insurance.com, there are four big reasons behind the jump in premiums:

  • More severe weather events and wildfires are leading to higher claims.
  • Insurance companies are pulling out of high-risk areas, reducing options for homeowners in some states.
  • Past rate increases haven’t kept up with the rise in claims.
  • The cost to rebuild or repair homes has gone up due to higher material and labor costs.

Basically, disasters are happening more often, repairs cost more, and insurers have to adjust their rates to keep up. Data from ICE Mortgage Technology helps paint the picture of how the average yearly premium has climbed over the last decade (see graph below):

What You Can Do About It

Homeowner’s insurance is a must to protect your home and your investment. But with costs rising, you’ll want to do your homework to balance the best coverage you can get at the best price possible.

Homeowner’s insurance rates vary widely based on location, provider, and coverage. Shop around and compare quotes before settling on a policy. And don’t forget to ask about discounts. Things like security systems or bundling with auto insurance could help lower your insurance costs.

Bottom Line

When you’re planning to buy a home, it’s important to look beyond just your mortgage payment. You’ll also want to budget for your homeowner’s insurance policy. It gives you a lot of protection against the unexpected. And while it’s true those costs are rising, there are things you can do to try to get the best price possible.

What’s your biggest concern when it comes to budgeting for homeownership? Let’s talk through it and make sure you’re set up for success.