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Editor’s Note: This is the final part of a three-part series exploring the rising cost of home insurance. Here are parts one and two.

When you own a home, you want to protect your investment.

But home insurance premiums are rising fast. And if you’re looking for ways to reduce this growing financial burden, you could be taking risks you’re not aware of.

Here’s how to make sure searching for a lower rate doesn’t involve forfeiting the coverage you need.

Compare Apples to Apples

First off, if you’re shopping around for a new policy, make sure you only compare quotes for the same type and amount of coverage. That way you’ll know if an insurer is offering less protection to be more competitive on price and be able to make a fully informed decision about whether the trade-off is worth the savings.

For each type of coverage, consider the coverage limit, the maximum the insurer will pay for a specific type of loss. Also review the deductible — the amount you have to pay before the insurer will — and any specific exclusions that narrow the scope of coverage.

“When consumers focus on premiums rather than coverage limits, insurers have a very natural incentive to cut prices by offering less insurance,” Tony Cookson, a business school professor at the University of Colorado Boulder, told the school’s campus news publication earlier this year.

Take the study Cookson and his colleagues did on the insurance coverage of homeowners who lost their houses in a 2021 wildfire in Colorado. After examining almost 5,000 insurance contracts, they estimated that 74% of those homeowners didn’t have enough coverage to rebuild their home, and in 36% of cases, their policy covered less than three-quarters of the cost.

Their deduction: Homeowners don’t always realize when they’re sacrificing coverage amounts to get a lower price.

Understand the Coverage Types and Limits

Part of making informed comparisons involves understanding the components of a policy. Standard home insurance typically reimburses you after a theft, accident or disaster (except for a flood or earthquake,) and includes four main types of coverage:

•   Dwelling coverage: to repair or rebuild the house itself

•   Personal property coverage: to repair or replace belongings

•   Additional living expenses (ALE) or loss of use coverage: to help pay for a hotel or other living arrangement if your home is uninhabitable

•   Liability coverage: to protect you if someone sues you over an injury or damage to property

For dwelling and personal property coverage limits, it’s important to understand the difference between Replacement Cost Value (RCV), which would cover the cost to replace the house or items at current prices, and the Actual Cash Value (ACV), which would only reimburse you for what your home or items are worth at the time of the loss, deducting for age and wear and tear.

Most dwelling coverage uses RCV, but you’ll usually have a choice with personal property. (RCV for personal property can cost about 10% more.) Either way, confirming is the best way to avoid surprises.

Note: Your dwelling coverage limit is not based on the market value of your home. The market value, or the price you’d list if you were selling it, is often higher and reflects the value of your house and land as well as market conditions.

What Does It Mean to Be Underinsured?

Being underinsured refers to not having enough coverage for all your costs when you have a claim. In other words, there ends up being a gap between the actual costs of fixing or replacing your home or belongings and what the policy will reimburse you for.

Underinsurance is arguably riskiest when there is a total loss from a fire, hurricane, tornado or other catastrophe. Although most people won’t ever face this kind of catastrophe, industry estimates suggest two-thirds of U.S. homes are underinsured for a total loss, according to the consumer advocacy group United Policyholders.

But being underinsured can also be a problem when there isn’t a total loss. Maybe the dwelling coverage limit isn’t enough given inflation, rising construction costs or building code changes. (More on this below.) Or you didn’t tell your insurer you upgraded a kitchen or bathroom or finished the basement.

Or perhaps as some insurers scale back standard coverage, you’re just unaware of certain exclusions or deductibles that can leave you vulnerable.

Determine If You Have Enough Coverage

If you have a mortgage, the lender will almost certainly require you to carry homeowners insurance. At a minimum, you’ll have to have at least enough dwelling coverage to pay off your loan, though both insurers and policyholder advocates recommend insuring the full Replacement Cost Value.

When you’re comparison shopping, each insurer will have its own estimate of the cost to rebuild. But these may only be as accurate as the default figures programmed into an insurer’s software, so United Policyholders recommends getting a second opinion. You can use:

•   A knowledgeable independent agent or broker

•   A building contractor who comes to your home to give an estimate

•   Your own math — divide the limit by a standard per-square-footage replacement cost for your area

•   An online software program like e2value’s Pronto

An accurate estimate is especially important because insurers may calculate other coverage limits as an automatic percentage of the dwelling coverage limit. Personal property is usually 50%-70% of the dwelling coverage limit, while Additional Living Expenses is often 20%, according to the Insurance Information Institute.

When to Add Extra Coverage

The cost to rebuild a home is fluid, especially if a disaster triggers a sudden increase in building costs.

While some policies will include an inflation adjustment, you may want to consider adding Extended Replacement Cost Value coverage if you live in a disaster-prone area. This will typically pay 20% or more over the limit, depending on the insurer.

Other additional coverage options include:

•   Ordinance or Law: If new building codes or laws that were enacted since your home was built add to the cost of rebuilding.

•   Scheduled Personal Property: If high-value possessions such as jewelry, antiques, or fine art exceed your personal property limit.

•   Earthquake Insurance: Because earthquakes aren’t a covered disaster in standard home insurance policies.

•   Flood Insurance: Because floods aren’t a covered disaster in standard home insurance policies.

Higher Deductibles

Although a higher deductible might technically leave you underinsured, it can actually be a pretty safe way to reduce your premiums. Just make sure you would be able to afford the additional cost if you need to file a claim.

After all, insurance involves hedging your bets and weighing the trade-offs. The more coverage you have, the more you’ll pay but the more peace of mind you’ll have. The less coverage you have, the more risk you’re taking. In the end, it’s all about striking the right balance.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM2025043001

This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

Editor’s Note: This is part two of a three-part series exploring the rising cost of home insurance. Coming next week: How to avoid leaving yourself underinsured.

In the past, you may not have thought much about home insurance. You chose an insurer when you bought your house, but might have gone into auto pilot after that, rubber stamping the bill each year at renewal because a small increase was normal, even baked in.

If the extra cost was rolled into your monthly mortgage payment, no big deal. The bank did the math and you could handle the difference.

These days, it’s a whole different ballgame. Average home insurance costs have shot up 62% since 2018 as the weather has become more extreme. Even after adjusting for the post-pandemic spike in inflation, costs rose 24% between 2020 and 2024. In some states, a typical household now pays $400 or $500 a month.

So what should you do? If you have a mortgage, home insurance is required. And even if you don’t, going unprotected is risky.

One option is to search for a lower rate. There are no guarantees you’ll find one, but premiums can vary widely by insurer. And comparison shopping has become more common as rates have risen. Just make sure you get apples-to-apples quotes before you switch. If saving money would leave you underinsured, it’s probably not worth it.

Here’s a brief guide on how to shop around and what to weigh as you do. Much of it applies if you’re getting homeowners insurance for the first time or for a new house too.

(Note: Looking for coverage because you’re being dropped by your insurer presents a unique set of challenges. The consumer advocacy group United Policyholders has some tips for navigating that.)

What to Weigh

Shopping around can be time-consuming, particularly if your policy needs to cover less straightforward things like an in-law suite or certain valuables. But it can be very worthwhile.

Let’s say you’re looking for $500,000 of coverage for your 15-year-old home in the Westchester neighborhood of Los Angeles. According to a premium comparison tool on the California Insurance Department’s website, annual premiums vary from just over $1,000 to well over $3,000, depending on the insurer.

Many online comparison tools, including on other state insurance department websites, can give you similar information. This will help you gauge what to expect before you invest the time getting quotes.

Before you switch insurers, you’ll also want to weigh:

•  Losing any loyalty discount you might receive from your current insurer

•  Potentially losing any bundling discount you currently get for combining your home insurance with auto or other policies (if you switch only your home insurance)

•  Gaining any discounts that might only be available from a new insurer

•  The reputation of a new insurer (more on that below)

•  The timing. You can switch insurers anytime, though some companies may charge a cancellation fee if it’s before your renewal. If you don’t have time to find a less expensive alternative before your renewal, find out if there’s a fee. If there isn’t, you can always renew at the higher rate and then take a month or to look for something better. It will require some paperwork to get a refund check later, but at least you won’t be rushed. Just make sure you don’t cancel your old policy before your new one is active.

How to Start

1.    Choose a method. There are three main ways to shop around: You can call individual insurers on your own, use an independent agent or broker, or use an online platform or marketplace. (SoFi’s platform lets you compare quotes from up to 30 top insurers using Experian Insurance Services.)

   If you’re calling on your own, be prepared to set aside 30-60 minutes per insurer.

  And keep in mind that not all independent insurance professionals work with all insurers. Some insurance companies only sell directly or through “captive” agents.

  Not sure where to start? Ask relatives or friends for recommendations.

2.    Gather your information. You’ll definitely need your current policy. You’ll also want to know the square footage of your house, what it’s made of, its age, the age of your roof (if it was replaced since your house was built,) and the last time the electrical system and plumbing were updated. Reports from an appraiser or home inspector often have these kinds of details.

3.    Try to get at least three quotes. The more options you pursue, the more secure you’ll feel choosing one of them.

How to Compare Apples to Apples

There are a lot of variables in an insurance policy. That’s why it’s critical to compare the same level of protection across insurers.

At a basic level, home insurance reimburses you after a disaster, theft or accident. And a standard policy typically applies to repairing or rebuilding the house itself, replacing belongings, and defraying the cost to live elsewhere. It also includes liability coverage, which protects you if someone sues you over an injury or damage to property.

When comparing quotes, make sure to match both the types and amounts of coverage. For each type of coverage, consider the coverage limit — the maximum you’ll get for a specific type of loss, as well as the deductible — the amount you have to pay before the insurer will.

Here’s a worksheet from the National Association of Insurance Commissioners (NAIC) that can help you keep track.

As you compare, you’ll want to answer these questions:

•  Will the policy pay claims on your home and/or belongings based on Actual Cash Value (which takes into account your home’s wear and tear) or the Replacement Cost Value (which covers replacing the items without any depreciation)? RCV gives you more protection than ACV, but the premiums will also likely be more, according to the NAIC.

•  Are there exclusions for certain “perils,” like damage from wind or hail? (Flood and earthquake coverage must be purchased separately.)

•  What are the deductible options and how would each of them affect your premium?

•  What discounts are you eligible for?

The key is to understand your policy so you’re not surprised after something has happened.

Look at More Than Price

Price might feel like the bottom line, but a cheaper policy may not be worth it if the company is hard to work with or unreliable.

Online reviews and J.D. Power surveys can tell you a lot about an insurer’s reputation for customer service, and some state insurance departments track complaints. If you’re considering an insurer you’ve never heard of, it’s also a good idea to check its financial health with a rating agency like AM Best.

Next week in our series:
How to avoid leaving yourself underinsured.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM2025042301

This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

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.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM2025041601

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