Why More Homeowners Are Getting Minimal Home Insurance Plans

When you buy a home, you have to factor in certain costs outside of your mortgage. These include property taxes, maintenance, repairs, and homeowners insurance.

Homeowners insurance is a necessary expense because without it, you could end up facing exorbitant costs in the event of property damage. You could also find yourself on the wrong end of a lawsuit if someone gets injured on your property.

If you're applying for a mortgage, having homeowners insurance is a requirement. Once you have your mortgage in place, you may be able to get away with dropping your coverage from a technical standpoint. But just because you can forgo that coverage doesn't mean you should.

Of course, a lot of homeowners aren't willing to take the risk of having no coverage at all. But some homeowners may be opting for minimal homeowners insurance these days. Here's why.

Homeowners insurance costs keep rising

Between May 2022 and May 2023, homeowners insurance premiums rose 21% on average, according to data from Policygenius. And among homeowners whose premiums went up, the average increase during that time frame was $244. For this reason alone, it's easy to see why homeowners may be leaning toward minimal coverage plans.

Why are homeowners insurance companies charging more? A big reason is that they're increasingly having to pay out on claims due to extreme weather fueled by climate change.

In fact, some insurers have pulled out of states like Florida and California due to the extreme weather events experienced there, leaving homeowners with fewer options to obtain coverage. As such, more homeowners are simply opting to not insure their homes. In Florida, for example, 15% of property owners do not have a homeowners policy.

What does minimal homeowners insurance even look like?

If you can't afford to insure your home to the fullest extent possible, you may decide to purchase minimal coverage for protection against many types of damage. This is known as HO-1 coverage.

HO-1 policies will generally not pay out for damage caused by the weight of snow and ice, accidental water or stream discharge, frozen or cracked/bulging pipes, falling objects, and damage caused by an artificially generated electrical current. But most higher-level policies will pay for these events.

Also, HO-1 policies generally do not include liability coverage in case someone gets hurt on your property. It also usually won't cover your possessions within your home or the cost of temporary housing if your home is not habitable following damage.

You may technically be able to get away with having HO-1 coverage rather than a more robust policy. But whether that's a wise move is another story.

You might save money on your homeowners insurance premiums with HO-1 coverage. But if your property sustains major damage, you're running the risk of, for example, having all of your furniture, electronics, and appliances completely destroyed without being in line for any sort of payday to replace them.

In fact, you should know that HO-1 coverage is not available in most states. And if you're first applying for a mortgage, your lender may not accept it. Rather, it might require you to have a higher level of coverage.

A risk you don't want to take

All told, homeowners insurance is an expense you shouldn't skimp on. It's easy to see why homeowners may be moving toward minimal insurance policies, but that doesn't make it a sound choice.

If you're struggling to afford homeowners insurance, a better bet may be to find ways to maintain a higher level of coverage while saving some money. That could mean shopping around with different insurers or putting added safety measures in place at home, such as having an alarm system installed. Bundling your homeowners and auto insurance policies might also result in some savings.