Homeowners Insurance Costs More Than Ever — but Covers Less

Most homeowners would prefer to get as much homeowners insurance coverage as they can at the lowest cost possible. Unfortunately, though, the double-whammy of commonly-occurring natural disasters and high inflation are leading to the opposite effect: Homeowners are paying more than ever for diminishing levels of insurance coverage.

According to reporting by the New York Times, Robert Shiver, a Tampa-area homeowner, saw his yearly homeowners insurance bill more than double, jumping from $3,800 to $8,000 in the course of a single year. Unable to pay such a high cost, Shiver called up his agent to dial down his coverage level — which bought him an affordable premium, but less peace of mind in the event that he suffers a covered loss.

And unfortunately, Shiver is far from an outlier in this experience.

Why are insurers reducing coverage and increasing costs?

While increasing homeowners insurance costs are inconvenient for homeowners, they’re not without cause. Last year, according to the Gallagher Research Centre (which provides research for the insurance industry), insurance losses due to natural disasters topped $100 billion — for the fourth year in a row.

In fact, in certain extremely disaster-prone areas, like California (wildfires) and Florida (hurricanes), some insurers have stopped writing new homeowners policies entirely. This troubling trend has led legislators to pen new bills, like the INSURE Act, aimed at offering both homeowners and insurance companies relief.

In the meantime, though, homeowners may find themselves taking the scalpel to their policies just like Shiver. But in lowering their coverage, they may find themselves underinsured — meaning their policies won’t cover the full cost it would take to rebuild their homes in the event of a catastrophe.

The effect is even more pronounced thanks to the rising cost of construction materials — more than 82% of which have increased in price by an average of 19%, according to construction industry consultant firm Gordian.

Inflation, as well as recent supply-chain issues, are both to blame for climbing construction costs, which can render homeowners’ less-comprehensive coverage even less useful in the event a rebuild is necessitated.

Homeowners insurance coverage can be worth the cost

While homeowners insurance isn’t legally mandated in the same way car insurance is, mortgage lenders almost unanimously require coverage — and 85% of homeowners carry it, paying an average of $1,445 per year.

Even for those who own their home outright, homeowners insurance is an important financial product — it helps to protect what amounts, for most Americans, to their most valuable asset and largest lifetime purchase. And it’s not just the structure of your home that the policy protects: Typically, homeowners insurance covers personal belongings, as well as some liability in the event that someone is accidentally injured by your family or on your property.

If you own your home, it’s worth thinking twice before slashing your policy — even in the face of increasing costs. Of course, economic trends like inflation have also increased the cost of living in other areas, making increasing insurance costs less feasible for many Americans to keep up with.

Our best suggestion: When it comes time to buy homeowners insurance (or change an existing policy), consider taking the extra time to shop around. While this trend in increasing prices is industry-wide, you may be able to find an insurer who can customize coverage to suit your needs and your budget. The more insurers you query, the better your chances of finding an answer you like.