Homeowners insurance rates across the country are rising fast. Find out why, and what you can do to avoid a higher home insurance premium.
Are you feeling the squeeze from the cost of your homeowners insurance policy? If so, you're not alone, because homeowners insurance rates are rising in every state.
What's propelling these increases? Two trends impacting every state are increases in natural disasters and rising construction costs.
But these national trends are only part of the story. Personal factors – your home, where you live, your policy – are a crucial part of your insurance premium.
This article covers the causes behind rising and insurance rates, and what you can do to combat them.
Natural disasters are currently increasing in both severity and frequency. According to the United Nations, today there are about four times as many natural disasters compared to 1970. And that's leading to some steep losses. The global insurance industry faced bills totaling $135 billion in 2017. Those losses, in turn, are passed onto consumers.
That's compounded by the fact that construction costs are higher than ever. Why? Several reasons:
High construction costs raise insurance rates because the cost to rebuild a home is a factor in the price of your policy. But disasters and construction costs are only part of the story.
Disasters and rising construction costs are raising rates across the board, but the price of a homeowners policy also depends on personal details. There are four crucial factors that can spike your premiums.
As any homeowner knows, home insurance policies are highly customizable. Shoppers have numerous coverage options when buying a policy. Certain policy types and coverage levels cost significantly more than others.
First, homeowners choose a policy type. They have eight options:
Though it's the 'special' type, the HO-3 type is the most common homeowners policy. It offers considerably more coverage than HO-1 and HO-2, but it doesn't cost significantly more. Unsurprisingly, policy types with more coverage and less exclusions cost more.
After choosing a policy type, you can customize the coverage levels. A homeowners insurance policy includes four different types of coverage:
Beyond coverage levels, other factors can also make your homeowners insurance more expensive.
First, your deductible plays a role. A high deductible comes with lower premiums, and vice-versa. There's a lot to consider when choosing a deductible.
Second, any add-ons like riders, endorsements, or flood insurance (sold separately) will increase your homeowners insurance costs. People with large assets and high-value items need riders and endorsements. Virtually every homeowner needs flood insurance – even those who don't live in flood-prone areas.
You can't stop home insurance rates from rising across the country, but you can do your part to soften the blow.
It's tempting to file a claim for any covered damages that happen to your home. After all, that's what insurance is for, right? Yes, but filing claims can and will raise your insurance rates – especially if you file several.
If you're considering filing a claim, it's absolutely vital you do your homework. Never file a claim if the damages are worth less than your deductible. If damages are only a few hundred dollars over your deductible, you should pay for repairs yourself.
Also, don't file a claim if the damages aren't covered or if they're due to your own negligence. Your insurer will deny the claim, but still add said claim to your record. That, in turn, can lead to an increased premium.
Make sure you're not paying for more coverage than you need. Most people choose their home insurance coverage levels when they first buy a policy without bothering to reassess. These steps can help you trim any unnecessary coverages:
Homeowners rarely reassess coverage levels, and they rarely consider switching insurance companies. Why? Well, buying an insurance policy is a time-consuming process. But every insurance company uses their own pricing algorithms. Different companies offer different rates for identical policies. You could be paying higher rates than necessary.
How do you make sure you're getting a good deal on your homeowners policy? You have to shop around and compare quotes from different home insurance companies. How do you do that without wasting your time getting individual quotes from each insurance company? Use QuoteWizard to quickly get quotes from top homeowners insurance companies.
There's a lot of simple improvements that can lower your homeowners rates:
A: The answer to this question is different for everyone, depending on their needs. A basic rule of thumb is to have enough homeowners insurance to restart your life, in the event that your home is destroyed.
You should have enough dwelling coverage to completely rebuild your house. You should have enough personal property coverage to replace all your stuff. You should have enough liability to protect all your assets. And you should have enough additional living expenses coverage to maintain your lifestyle if your is unlivable.
But exact coverage amounts are different for everyone. For a more detailed guide, read our article on how much homeowners insurance you need.
A: A policy with a low deductible has a higher monthly premium. But if and when you file a claim, your out of pocket costs are lower.
Different homeowners prefer it either way. Would you rather have a lower monthly rate, but a higher out of pocket cost after a claim? Or vice versa?
If you have a healthy savings account, you might prefer a high deductible. Need more info? Read our article on choosing the right homeowners deductible.
A: Replacement cost offers better payouts. Your items are valued at their original cost, without accounting for depreciation. Actual cash value, on the other hand, adds depreciation to value your stuff.
A policy with replacement cost is more expensive. If you can easily afford it, go for it. For more details, read our article on actual cash value versus replacement cost.
A: Like we mentioned earlier, home insurance rates are increasing across the country. The main culprits – disasters and high construction costs – are out of your control. Even if you maintain a flawless insurance record, it's possible that your rates will jump.
If your city has a spike in property crimes, or people in your city file an unusually high number of claims, you could face a rate hike.
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