My Homeowners Insurance Just Doubled -- What Should I Do Now?
KEY POINTS
- Homeowners insurance premiums have risen at an unusually fast pace for the past couple of years.
- There are some good reasons for the increases, especially in certain areas of the United States.
- If you comparison-shop for insurance, you might be surprised at how much you can save.
If you received your homeowners insurance renewal notice and were unpleasantly surprised by how expensive it is, you aren't alone. Home insurance premiums jumped by nearly 13% on average last year and are expected to rise another 7% in 2023. And this is just the average -- many homeowners are seeing even steeper increases.
I'm one of them. In fact, my homeowners insurance premium nearly doubled over the past two years, according to my renewal notice I just received in the mail. So, if you're in the same boat as I am, here's why your premium might have risen so rapidly and what you can do about it.
Why are your homeowners insurance premiums rising so fast?
Homeowners insurance premiums typically rise at about 5% per year on average, so the recent trends are certainly above the typical level of increases. But it isn't that your insurance company is raising your premiums for no reason. In fact, a couple of major factors have caused the unusual surge in homeowners insurance rates.
Inflation
Inflation affects your insurance premiums in a few ways. For one thing, inflation makes the operating expenses of insurers rise, so this gets passed along to customers. And even more significantly, labor and building materials costs have risen dramatically over the past couple of years. From 2020 through 2022, the cost of residential construction materials increased by 34%. The biggest determining factor in your premium is typically the replacement cost of your home, so as that rises, so will the cost of insurance.
Natural disasters
The past few years have brought some costly natural disasters, including Hurricane Ida in 2021 and Hurricane Ian in 2022, and the past few years have been the most expensive ever for insurers. Insurers pass these costs on to customers, which can result in spiking premiums, especially in the most affected states. In fact, the Insurance Information Institute projects that premiums in Florida could increase 40% in 2023 alone, and the impacts of Hurricane Ian are the main reason.
Other factors
In most cases, the recent surge in homeowners insurance premiums can be attributed to the inflationary environment or recent natural disasters, but there are other factors that could be weighing on your insurance costs.
The age of your home is one example. For example, if your home is 15 years old, it's more likely to experience a roof leak than a home that's 10 years old. If you've had previous insurance claims, it can also have a big impact on your premium, especially if you've had multiple claims in the past several years.
What can you do about it?
The best thing to do if your insurance has spiked is to shop around for new coverage. You might be surprised at the range of price quotes you get on the same property from several different insurance companies. An independent insurance agent/broker who can get quotes from several different insurance companies could be a good place to start.
Another strategy is to ask your insurance company what you could do to reduce your premium. For example, some insurers give policy discounts for homes equipped with fire extinguishers and alarm systems. Some will give you a discount if you bundle auto insurance with the same company.
To be sure, given the inflationary environment and the recent wave of natural disasters, you may not be able to get your insurance premium quite as low as it previously was -- especially if you live in a disaster-affected state like Florida or Louisiana. But comparison shopping for insurance is something people don't do nearly enough, but could be a major money-saver if you do.
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