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Editor’s Note: This is part one of a three-part series exploring the rising cost of home insurance. Coming over the next two weeks: What to consider if you’re shopping around and how to avoid leaving yourself underinsured. One of the advantages of buying a house with a fixed-rate mortgage is being able to budget for the same payment amount every month. But if you bundle your insurance premium in with your monthly principal and interest, chances are what felt like a relatively fixed monthly housing payment has started to feel anything but fixed. Since 2018, the average annual homeowners’ premium nationally has increased 62% to $1,761, or about $147 a month, according to Freddie Mac’s latest 2024 calculations. And costs vary widely, so premiums in some states are four or five times as high as others. In fact, insurance has become a primary contributor to the country’s housing affordability crisis, in addition to the pandemic surge in real estate prices and a steep increase in mortgage rates. The average premium climbed 24% between 2020 and 2024 after inching up just 1% over the previous four years, data from Harvard University’s Joint Center for Housing Studies show. And that’s after adjusting for the rapid inflation of recent years. So is this trajectory the new norm? And if you own a home, do you have any recourse? Here’s what we know and how you may be able to reduce your costs.The Impact of Climate Change
At a very basic level, insurers set their premiums according to their anticipated risks. When the likelihood they’ll have to pay a claim rises, so do their premiums. As climate change has made the weather more volatile, the severity and frequency of extreme events like hurricanes and wildfires has increased, increasing the scope of insured damage. Disasters in 2022 and 2024 caused over $180 billion in total damage each year, making them two of the four costliest years on record, according to the National Oceanic and Atmospheric Administration. This is one reason why insurance premiums vary so much by state. Between 2017 and 2023, Texas, Colorado, Arizona and other states west of the Mississippi — areas prone to tornadoes, hail, and wildfires — saw the fastest premium increases, according to the Federal Reserve Bank of Minneapolis, citing S&P Global data. In fact, homeowners in tornado- and hurricane-prone states like Nebraska, Louisiana, and Oklahoma pay over $500 a month, more than five times as much as residents of Hawaii, Oregon and Delaware, according to a November analysis by Marketwatch Guides that put the national average at $227. And a major study released by the U.S. Treasury Department’s Federal Insurance Office in January showed residents in the riskiest 20% of U.S. ZIP codes (those with the highest expected losses) pay 82% more in premiums than those in the least risky ZIP codes. Plus, these pricier policies may provide less coverage than they used to. Many homeowners in hail-prone areas of the Upper Midwest, for example, are now responsible for a bigger share of roof repair costs, according to the Minneapolis Fed. And then there are states like California and Florida, where insurers are abandoning disaster-prone markets altogether, forcing many homeowners to get more limited but often more expensive policies from their state’s “insurer of last resort.”Other Drivers of Price Increases
But climate change is by no means the only factor in the sharp premium increases. In fact, some insurance industry groups have suggested that the link to climate change is sometimes overstated. Other macroeconomic forces include:• The pandemic spike in inflation, which increased the cost of materials and labor needed to repair and rebuild homes
• An increase in litigation and insurance fraud
• More people moving into disaster-prone areas
• A surge in the cost of reinsurance (insurance purchased by insurers) that’s at least partly related to the damage from extreme weather
And there are more typical reasons prices go up, like a change in your circumstances. Maybe you recently added on to your house, filed a claim, or installed what insurers deem an “attractive nuisance” such as a trampoline or swimming pool.An Uncertain Outlook
While premiums may continue to go up, overall increases are expected to be less dramatic this year, some forecasts suggest. As an industry, insurers are adjusting to the new norms and profits have stabilized, according to the reinsurance giant Swiss Re. Still, there is a lot of uncertainty. The impact of extreme weather is hard to predict. And new tariffs on U.S. imports could drive up rebuilding costs, Swiss Re said.What You Can Do
Ok, that’s probably not what you wanted to hear. But as a homeowner, you do have options. Here are some things you can do to potentially lower your costs:• Shop around. Premiums can vary significantly by insurer, so it pays to explore all your options. You can do this by calling around on your own, going to an independent broker, or accessing an online marketplace like SoFi’s. (We let you compare quotes from up to 30 top insurers through our partner Experian Insurance Services.) Just make sure you’re comparing apples-and-apples coverage. Lower quotes aren’t necessarily less expensive if they come with reduced protection.
• Ask your current insurer about discounts. These could be discounts you missed initially or ones you’re newly eligible for (because you’ve gotten married, for instance). Your insurer may reward you for your loyalty, for bundling your coverage with an auto or umbrella policy, or being claim-free for a certain number of years.
• Increase your deductible. Your deductible is the portion of a claim you pay. Agreeing to shoulder more of it can help reduce your premium, but make sure you could actually afford the additional cost if you needed to make a claim. It’s important to weigh any potential coverage changes like this very carefully. You don’t want to leave yourself underinsured and in a financial bind.
• Make your home safer. Upgrades cost money, so this is not a money-saver in the short run. But if you’re considering a new roof or installing a security system anyway, you may find that lower insurance premiums are an added benefit.
Next week in our series: What to consider if you’re shopping around for better rates.
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