Inflation comes in many guises. In some areas of the country, the cost of insurance, particularly property insurance, is rising dramatically faster than the currently high general inflation rate.
One participant in the NewRetirement Facebook group recently reported: “Our homeowners insurance bill just came in and reflects a 22% increase over last year. That’s after a 15% increase last year over the previous year. Prior to that it was a reasonable 4% increase per year.”
Why Are Property Insurance Costs Increasing?
There are multiple reasons for increasing property insurance costs.
Rise in Home Values
Home values have increased tremendously, rising (on average) to their highest values ever. So, because the replacement value of your home has gone up, so too does the insurance covering that home.
Most insurers increase your coverage to keep pace with an increase in the home’s value, based on your zip code.
Rising Labor and Materials Costs
Home values are high, but so are costs for materials and labor. If you were to need to rebuild your home after a disaster, it would cost much more to do that today than it would have a year or two ago.
Increasingly Common Natural Disasters
In some areas, insurance costs are going up due to the increased risks of fires, storms, or floods. In fact, in many communities in California and Florida, insurers have gone beyond raising rates and now refuse to insure certain homes that they deem particularly at risk.
In California, whole cities are being denied property insurance. In other places it is just the homes on the edge of wilderness areas.
In Florida, Howard reports, “Insurers are dropping customers if a roof is over a certain age, such as 15 years old. We’ve had to change carriers almost every year.”
How to Lower Property Insurance Costs
You can potentially save yourself thousands by taking steps to lower your insurance costs.
1. Shop Around
As Howard wrote, “For insurance… you should always shop till you drop.”
Tom shared his cost saving experiences, “I shop my policy every three years. I send my declaration page to several trusted agents. I do the same with my auto policy. This exercise has served me well over the decades.”
2. Don’t Rule Out Insurers You Previously Deemed Too Expensive
If you get a high quote one month from an insurer, don’t assume that the rates will be the same if you inquire next month or next year.
Insurance agencies are coming in and out of the market constantly and are frequently adjusting coverage and rates. Insurance can be very fluid, changing all the time.
One insurer with over 22 years in the industry told the San Francisco Chronicle, “your insurance quote might depend on the day the inquiry is made.”
3. Shop Around Yearly (Or, At Least Every 3 Years)
It’s a pain to shop insurance. However, doing so can save you thousands.
Many people only seek discounted insurance when they notice a rate change. However, others set a reminder to shop their insurance options annually.
Shopping your insurance is a good financial habit.
4. Shop Around, but Try to Get Apples to Apples Comparisons
When shopping for insurance, you need to look at the details, not just the costs.
You want to know how much is covered and under what circumstances. When shopping, review:
- Coverage limits (should be an amount adequate to completely rebuild your home)
- Deductible (the portion of the repair costs you are responsible for)
- Liability limit (covering damage to other people and their property)
- Medical payments (covering medical costs of someone injured on your property)
- Personal property coverage (your posessions)
- Extra coverage (also known as hazard insurance)
- Loss of use (living expense coverage if you can not reside in your home)
- Other add-ons
You should pay particular attention to the type of replacement being offered by the insurer. Are they offering actual cash value or replacement value?
If you are insured with “actual cost value,” then you will only get what the item could be sold for. Property covered with “replacement value” means that the insurer will cover what it would cost to replace the damaged items with new.
5. Shop Around and Bundle Your Home, Auto, and Umbrella Insurance
Bundling your insurance, getting multiple insurance types – home, auto, and umbrella coverage – from one company is estimated to save you about 25%.
Glen recommended bundling, “This year (compared to last year), our house valuation went up about 25% with a corresponding increase in our premium. To some degree, that was understandable. However, when I shopped around, I found a company (nationally recognized) that was substantially lower. In fact, when I bundled home, auto, and umbrella, the total was less than what I paid last year (and it included the increase in property valuation plus a 50% overage).
6. Use an Independent Agent (Or Do it Yourself)
Independent agents. Some people are big fans and others think that the best way to find the lowest rates is to do it yourself.
7. Compare This Year’s Coverage to Last and Talk to Insurer
Insurance companies can change the coverage parameters. By comparing what they are covering this year to last, you can make a more informed assessment or the rate increases and potentially adjust the coverage to reduce your cost.
Said Linda, “On closer review they [the insurer] added new stuff that I didn’t need or want. I brought mine down $700 a year by comparing last years to my new bill.”
8. Relocate
Kelly reported, “We are in a moderate wildfire zone and our premium increased 50% from $4k to $8k. Our solution? We are moving to Idaho.”
Relocation, especially in retirement, can be desirable from both a lifestyle and cost perspective. Housing, cost of living, insurance, and other costs should be assessed when considering relocation.
9. Watch Out for Expiring New Customer Rates
Insurers, like cable providers, will often rope in business with a “new customer rate.”
If your insurance has jumped significantly, be sure to understand why. Did your introductory rate expire? Talk to your insurer about the increase and see how they propose to reduce your cost.
10. Look at Public Insurance Options
Some states have developed limited property insurance options for homeowners who can not get private insurance. California has the FAIR Plan. It subsidizes an increasing number of homes in the footprint of fire or otherwise dangerous environmental outcomes.
