In recent years, U.S. homeowners have seen insurance premiums skyrocket. Between 2021 and 2024, the national average premium increased by 24 percent, more than double the rate of inflation over the same timeframe.
Below are some of the main contributors homeowners should be aware of.
• Inflation and increasing reconstruction costs
The cost of building materials, labor, and other homebuilding expenses has increased sharply, making it more expensive to rebuild following a natural disaster.
• Underwriting losses for insurers
A rise in claims has led to financial losses for many insurance companies, which now face challenges related to profitability and solvency. These losses have resulted in rate hikes by many insurers.
• Limiting coverage in certain areas
Some companies no longer provide coverage for those living in areas at high risk for natural disasters. In some states, insurance companies are prohibited from using predictive modeling based on climate projections and reinsurance costs. Without the ability to adjust rates to match potential future risks, many are simply deciding to eliminate their exposure to those states. For example, State Farm no longer issues new policies for residents of California due to the state’s high risk of wildfires.
• Stricter underwriting requirements
Insurance companies are becoming stricter about the types of risks they’ll cover, making it more difficult for homeowners to qualify — especially those who live in high-risk areas.
• Labor shortages
A shortage of skilled workers increases the cost of home repair and rebuilding. This cost is often passed to consumers in the form of higher premiums.
Four Actions to Help Lower Your Home Insurance Premium
Fortunately, the actions discussed below can potentially help you lower your home insurance premium.
1. Shop around — If you’ve been with your insurer for a while, it may be time to reevaluate your options. Consider reaching out to reputable insurance companies to compare rates and coverage, making sure your policy remains competitive.
2. Bundle — Many insurers offer multi-policy discounts for those who bundle homeowners and auto insurance. Bundling your policies with a single provider can also make it easier and more convenient to manage your coverage.
3. Streamline — If it’s been a while since you reviewed your policies, you could save money by streamlining your coverage. Start by determining how much coverage you need. For example, consider how much it would cost in today’s dollars to rebuild your home. Doing so can help guide your homeowners policy amount. Then look for ways to streamline your coverage. Maybe you no longer own a valuable possession that was still covered by your policy. Adjusting your coverage amount may potentially lead to savings. However, don’t be tempted to reduce or eliminate your coverage, as you could regret your decision if you ever need a payout — and protecting such a large asset is crucial.
4. Raise your deductible — One way to potentially save is by increasing your deductible. The key here is to make sure you have enough saved in your emergency fund to cover the higher deductible, should something unexpected happen.
AJ Kratz, CFA, CFP is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.
This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.