Learn why home insurance prices fluctuate and ways to navigate the cost cycle without compromising your coverage.
Home insurance prices fluctuate based on your home’s location, value, age and construction materials. The national average for home insurance is around $2,614 per year for $250,000 in dwelling coverage, according to MoneyGeek.
Rates have increased steadily in areas with extreme weather like floods, wildfires, tornadoes or hurricanes. And with inflation driving up the cost of materials and labor, prices have skyrocketed.
Don’t cancel your insurance coverage
Even if you own your home outright, you may have a legal obligation to maintain insurance. According to the Insurance Information Institute, 12% of homeowners have dropped their insurance to save money. But going without insurance isn’t recommended. Here’s why:
You won’t have enough money to rebuild after a disaster.
You might be tempted to skip home insurance altogether. If you go this route, you’ll need enough cash to rebuild your house. Essentially, you’re self-insuring. Remember, you already paid for the house once; you’ll pay for it again without reimbursement. And it’s always more expensive the second time around. All the things driving up your home costs are why insurance companies are charging more.
Lenders and cosigners require it.
Home insurance isn’t legally required, so you can own your home without insuring it. However, most people have a mortgage lender or other financial stakeholder in their home, and those institutions require homeowners to carry insurance. If your home insurance provider drops your coverage while you have a mortgage, lenders can enroll you in “force-placed insurance.” Lenders might force-place flood insurance in flood zones to meet the legal minimum required to protect the property. These policies are usually more expensive than standard policies.
Homeowners and condominium associations require it.
Around 33% of all homeowners belong to a community association, according to the Foundation for Community Association Research. Community associations include condominium associations and homeowners associations, which oversee condominiums, housing cooperatives, townhomes and single-family homes.
Many associations require a minimum amount of insurance. Insurance protects everyone, from leaking water that could damage a neighboring unit to a fire that could gut an entire residence. Home insurance guarantees that owners have the funds to repair or rebuild. Without it, you risk value depreciation because no one wants to buy into a condo complex with burned-out units.
Many associations have a first right to refusal, including purchasing properties listed below the market value. Associations might use their reserves or levy special assessments to buy homes that drive down everyone else’s home values because the listing price is low. That’s why more HOAs and COAs require owners to have enough insurance to restore their homes rather than sell at rock-bottom prices to avoid repairs.
It’ll be harder to get coverage later.
Going without coverage can make you appear riskier to some companies. And don’t let your policy lapse, either. Some companies will take it as an opportunity to drop you for good, leaving you scrambling for coverage. Sign up for auto-pay to ensure your payments are made on time.
If you’ve let your policy lapse, call an independent insurance agent specializing in hard-to-place insurance. They shop for policies from several insurance companies and can help you get back on track.
What to do about rising insurance rates
You can do a few things to minimize costs or get more out of your current spending:
Ask your agent for a coverage review. If you haven’t looked at your coverage in a while, now’s the time. Insurance is a risk management tool. You can use it strategically to help cover what matters to you. Ask questions and see if there are ways to reduce your premiums. You might be paying for things you don’t need anymore, especially if you’ve undergone life changes like a divorce or retirement.
Know your credit score. Some insurance companies use credit scores to calculate your insurance premiums. If your score has increased significantly, ask your agent to shop around. You could get lower rates, better coverage or both.
Bundle your coverage. Some companies offer multiple policy discounts to get your business. Ask your agent to run the numbers and see if you could save by combining your home and auto policies.
Try a personal umbrella policy. If you want to increase your home and auto limits, an umbrella policy can do both. It’s a way to get significantly more liability coverage for less than raising them separately. Call your agent for details.
Pay upfront. Some insurance companies give discounts for paying the policy in full instead of monthly. If you can afford it, it might be worth a look.
Shop your condominium insurance. Even condo insurance can go up unexpectedly. Your condo unit may be in fine shape, but your building is also under scrutiny. Insurance companies price your property based on its location and structural integrity. Rates may climb if your building is an older mid-rise or high-rise. Structural collapses are costly.
You may recall the 2021 condo building collapse in Surfside, Florida, that killed 98 people. The owners of the condo units were awarded a $1.2 billion settlement. Florida changed its building inspection and restoration laws in response.
If your building is older or in disrepair, you could see a price increase in your assessment fees to cover the building’s insurance policy. Your association might enact special assessments to pay for structural repairs.
Consider parametric insurance. Insurance will be complex if you’re in a high-risk area prone to disasters. But parametric insurance could be a stopgap measure. It’s not intended to replace traditional home insurance but can provide a cash infusion without a lengthy claims investigation.
Parametric insurance pays out based on data points, not damage. For example, you might have a parametric policy that pays out $10,000 if wind speeds in your area exceed 100 mph, regardless of whether your home is damaged. You could supplement your standard home policy with a parametric policy to guarantee funds after such a weather event. It’s relatively new in the home space, so ask your agent if they have options.
Know your insurance premiums before you buy. You might have a coastal dream home in mind, but the insurance rates might cause more sticker shock than the home price. Call your agent if you’re in the home-buying market to see if the area you love is also an insurance nightmare. It’s one more piece of information to have before you buy.
Keep your property in good condition and report changes. Insurance companies can use drones and satellites to monitor homes. They can legally look for problems with roofs and chimneys. Others might ding you for having an unreported trampoline in your backyard since it’s an attractive nuisance and can affect your liability. Some insurance companies might look for reasons to drop customers in a tight market.
Call your agent and ask for a review
Insurance premiums will rise based on inflation and catastrophic events. You can use some of these tips to manage your premiums and avoid surprise cancellations. If you’re up for renewal soon, call your independent agent 60 days prior. This gives them time to scan the market. They can shop different insurance companies for the best prices for your needs.
