Last updated on October 30th, 2024 at 03:53 pm
Get ready, more homeowners insurance rates will continue to increase in 2025 at a double-digit rate. Your homeowner’s insurance rates are going in one direction and that’s UP. Are you prepared to pay additional annual costs upwards of four figures? Before you fault the insurance companies, consider that this is yet one more casualty of inflation. The problem started when everyone was locked down with COVID and the thing to do was repair or remodel your house.
The substantial demand for building materials pushed up the price of lumber and almost anything used to repair or build a house. The higher cost of building materials means higher rates for your insurance carrier to rebuild your house. Rate hikes began even before this time when natural disasters nationwide have been thrown into the mix.
Remember the fires in California (It’s an every-year event but the big one a couple of years ago)? Hurricanes in the past few years have contributed to the demand for construction materials. This in turn has caused an increase in construction costs. Supply chain issues are a key component in the chaos that has been in the U.S. economy for the past few years.
It’s nice to know the reasons for the increases but that does not soften the blow. As inflation continues at higher rates, it seems that homeowners will be hit with increasing insurance rates way outside the official rate of inflation.
Factors Affecting Homeowners Insurance Rates
- Location of the property (history of catastrophic events, proximity to a body of water)
- Amount of deductible
- Your credit score
- Cost to rebuild structures (your house, garage)
- The materials used in the construction of your house
- Your personal claims history (number of claims you have made in the last five or seven years)
- The property claims history (type, number of claims on the property in the past)
- Proximity to the fire station
- Policy details, coverage, and limits
- Year the house was built (or completely remodeled)
- The fire rating of your property
Are you paying attention to your annual homeowner’s insurance offer?
When is the last time you asked your insurance agent to look around for a better rate on your home? Most people do not pay attention to their homeowner’s insurance rate until they are buying a home or refinancing. It has been my experience as a property owner of my residence plus many other rental properties that insurance rates will usually increase every year.
Recently, I received a “renewal” notice that one of the policies would be automatically renewed. That’s usually a good thing because with all of the insurance policies that I have, sometimes I forget the renewal period. Most of us have the mortgage company pay the insurance premium from the impounds. This is another reason why many people do not pay attention to new rates until the annual escrow adjustment increases their mortgage payments.
My renewal increased by $1,000 for the year
The renewal I mentioned came with a $1,000 annual increase. That was a 25% increase over the previous year without any claims. I have good credit which is a factor in insurance rates, even so, the rate of increase in a 3-4% inflation year (the good old days) was too much for me to simply agree with. I contacted my agent and obtained a quote from an insurance carrier who wants the business. Their rate was about $100 more than last year, in line with inflation. I switched.
My agent tells me that most of his clients never call him. Because I have so many policies, I will receive an occasional call from my agent offering a better price for similar coverage. That’s great, it’s one more thing that I do not have to remember. Your property insurance is very important, it protects your greatest investment.
If there is a fire, or someone gets hurt on your property, your insurance is there is a backstop. If you live in California or a big metro with rampant theft, your homeowner’s insurance may help you if you become a victim. Your rate will also reflect the level of crime due to payouts for burglary and other economic crimes or liability claims.
Insurance rates exceed the inflation rate
| Year | Homeowner Insurance Rate Increase | Inflation Rate | Variance |
|---|---|---|---|
| 2019 | 6.22% | 1.81% | 4.41% |
| 2020 | 5.83% | 1.26% | 4.57% |
| 2021 | 10.69% | 7.02% | 3.67% |
| 2022 | 16.52% | 7.75% | 8.77% |
| 2023 | 20.38% | 8.56% | 11.82% |
The chart above shows that insurance costs are rising far faster than inflation. Could it be that even the official inflation numbers are not correctly tracking for homeowners? Insurance rates are still well above the official inflation rate.
We are all in the same risk bucket
Remember the Texas freeze a few years ago? Your rates are based on total national exposure for insurance companies not just what happens in your area. The concept of insurance is a shared burden. I live on the Mississippi Gulf Coast and in talking with clients, friends, and neighbors, we thought that because there were no hurricanes on the Mississippi Gulf Coast this year rates may drop. Not so for the reasons that I listed above.
Even without a hurricane on the Mississippi Gulf Coast, that big one on the Florida Gulf Coast (2022 and prior) was enough to push up homeowners insurance rates nationally.
I am learning that many people on the Florida coast had no home insurance policy. Some thought that because there had been no hurricanes for decades they would not be affected and a hurricane Ian-type event would not hit their area. Florida residents who live on the coast should have known better. Florida homeowners who fail to buy insurance will receive funding from FEMA with taxpayer dollars.
Think about this for a minute. I get their problem, homeowner rates have been going up and they could not afford coverage. Then there are the people who do not have sufficient replacement costs for their home coverage. The state of Florida is just one hotspot that causes everyone’s rates to increase.
Catastrophic losses happen everywhere
Storms that hit the North Atlantic coast have caused hundreds of millions in damage. Storm damage is a major contributor to higher rates and that can happen anywhere along the long U.S. coastline. Catastrophic losses can happen anywhere including river flooding or fires in the Colorado mountains.
Extreme weather is of course a major contributor to insurance costs but poor maintenance of the property is also a major reason. Fires in California consume homes each year because property owners failed to clear brush around their homes. Insurance companies pay off anyway then the whole cycle begins again.
Homes in a very expensive area along the California coast routinely slide down the hill. Work to stabilize the hill and house can prevent this yet homeowners pay their home insurance premiums and fail to fix the problem. I know of some properties that have slid down more than once. We all pay higher premiums as a result. Home insurance costs will continue to go up, there seems to be no end in sight.
Average Home Insurance Policy Cost in Alabama
| Year | Percentage Increase |
|---|---|
| 2019 | 6.22% |
| 2020 | 5.83% |
| 2021 | 10.69% |
| 2022 | 16.52% |
| 2023 | 20.38% |
| 2024 (forecast) | 20.00% |
The table above shows the average increase in cost from the previous year for homeowners insurance in Alabama. The national numbers are similar.
Insurance is there to protect you when that bad event happens
On occasion, I will get into a discussion with someone who tells me about the risks of living on the Mississippi Gulf Coast. The fact that we can have a hurricane. If they are from California, I tell them about the earthquakes and fires. People from the Northeast hear about their big snow storms and NorEasters. On occasion, I will discuss this with someone from Oklahoma after a major tornado has been there.
Virtually every area in the country is affected by bad weather, some more frequent than others. I recall a time when I was visiting Colorado and there was a hail storm so bad that it damaged thousands of new cars on dealers’ lots. They had to be scrapped.
The combination of catastrophic events, severe inflation, supply chain disruptions, labor shortage, and political complications have all contributed to many of us paying much more to our insurance provider every year.
You must pay your annual premiums if you have a mortgage
We have no choice but to pay those annual premiums. Even with a higher deductible, you save the year you make that change, what about the next year? You can change coverage limits but only so much. Your mortgage servicer will insist that you pay the homeowner’s insurance premiums as part of your contract. Fail to order your homeowner’s insurance policy and your mortgage company will order it for you.
Did you know that your credit rating and the rating of your home affect the cost of your homeowner’s policy? True, if you have a lower credit score, you will pay far more for insurance than if you had a 740 score. Also, if you have made claims for your property in the past, the home insurance companies have access to that information. Low scores and multiple claims will hit you hard when you apply for home insurance coverage.
Even with increasing rates, some home insurance carriers want to be competitive in a specific state or area and others want to pull out as their exposure has hit their target. Property insurance is regulated by state laws. Company X will come into state Y for a couple of years, sell policies, and stop selling for a while.
Insurance is a commodity, shop prices
Some companies leave the state permanently. There are several complex issues with property insurance that I will not get into in this article but it’s enough to say that you need not be stuck with the same insurance company when your premium increase is unacceptable.
Insurance is a commodity. An insurance company will offer to insure your property for X$ based upon their internal factors which vary from one company to another. These factors change as well which is why some are priced higher and others lower. Where the difference comes in is with the agent. Some companies are captive which means that their agents only work for their company and their company is the only one on offer.
Agents that act as brokers and offer multiple companies have more flexibility when a client calls for a new rate.
Years ago my company offered health insurance to our employees at zero cost to the employee. Every year we had to change the insurance company because the new company offered a lower rate to acquire the business then the next year they raised the rate to recover the discount the first year. Something similar is happening with homeowners’ insurance. It’s your responsibility to check on the renewal price and start the search early enough to get a policy bound before the current one expires.
You are going to make a change
Ok, so you have decided to change insurance companies because the home insurance rates you have been quoted are much higher than you think they should be. Your agent at this point can look around for you and obtain home insurance quotes that offer similar benefits with deductibles etc. that are the same. This would also include using current rebuilding prices which have gone up since last year.
When your agent finds the policy you want, be sure that the agent can get it bound and get the bill to your mortgage company in time for the renewal. The next thing you MUST do is to contact your mortgage company and tell them not to renew the policy with the old carrier. If you forget this, the whole process gets strange. Your mortgage company will pay the old company and not pay the new one. You end up with the old policy anyway and it’s too late to bind the new one.
I can tell you firsthand that even when I once told my mortgage company in writing not to pay, they did anyway. This forced me to use my credit card to pay for the new insurance and argue with the mortgage company for a couple of weeks to get a refund which came about a month later. This situation has occurred more than once for me. My advice, if you decide to make a change, assume that nothing will go as planned so stay on your agent and your mortgage company until the change is done right.
Since I am on the topic of insurance, you should know that most of what I said above applies to auto, boat, and RV insurance as well. You may need to shop around for these policies every year particularly if you have a low credit score that improves or you have been in an accident. Rates for vehicle insurance do not seem to change as radically as homeowners insurance but it’s good to plan.
Consider the following to help pass the insurance inspection and help reduce the cost of your policy
- Replace your roof if it’s damaged or older than 15 years old
- Replace your windows with new multi-payne impact ones to resist wind
- Clear all brush and anything that will burn from your home. Ask the fire department for distance recommendations
- If you are in a fire area, install a 2″ water line to the part of your home closest to burn areas and buy a large hose or hoses for fire suppression
- Buy plywood for windows in high-wind areas and install it in the event of a storm
- Cut branches that extend over the house, and remove any that may fall on the house in a storm
- Remove dead trees that can fall on the house or vehicles
- Keep junk, trash, and debris away from the house. Get rid of that pile of old wood and stuff stored in the yard, and clear all around the house.
- Replace broken windows
- Older homes may need rehab by removing wiring, pipes, etc from the previous century. Take photos to document the changes
- Support your fences and gates. Keep them in good repair and have boards to hold them up in a storm
- Install a home security system and burglar alarm in high-crime areas
- Replace your smoke detectors every 9 years
- Completely repair any water damage on walls, ceiling, and floors. Treat for mold, replace wood, drywall, and paint.
- Repair any wind damage was done that was not part of an insurance claim.
- Repair any exposed wood, paint, replace siding, etc.
- If you have an above-ground swimming pool, be sure there are steps to the pool and a fence around it.
- In-ground pools must be in a fenced yard, repair any concrete damage, and keep the pool filled with water or dirt.
Increase your deductible
That insurance inspector will take a hard look at your property. They are looking for the items above and more. Anything you have done to modernize the house should have been presented to the agent for the quote. If you see the inspector point those items out. Inspectors look for risk items. Any slip and fall, broken pavement, etc., are all potential risks. I have talked with friends and clients who have lost their coverage because they failed to maintain their property and the inspector reported this.
Another thing that you can do to push back on labor costs and the inflation rate is to adjust your deductible as mentioned above. Take more risks and pay less. Ask your agent for rates based on various deductibles and the reductions for each level. There is one more thing you can do? Sell your old house and buy a new one.
Rates are based on the age of the house and the roof. If you live on the Coast, new homes meet new FEMA guidelines for height, roof wind speed, etc. New homes pay much less than older homes.
You may be able to obtain lower property damage rates if you significantly remodel your home. You must update it which often means studs out remodel with modern wire, plumbing, etc. Some homes can be raised higher if they are not built on slabs assuming that will earn a better rate. Before you remodel, consult your insurance agent and determine the rules for lower rates. I bought a house a few years ago that was a complete studs-out remodel and that earned a big discount.
What can I do if insurance rates are too high and I can’t afford it?
This is a hard thing to tell people but if you can no longer afford to pay for insurance to protect your house, you must consider selling and moving to an area with lower rates. Such areas do exist. If for example, you have been living on the coast for decades and rates are now well out of your range, you have two choices. Go uninsured if you own the property free and clear of a mortgage or move.
You could sell your house to someone and rent it back throwing the cost of insurance to them. This is one way people can stay in their homes. After Hurricane Katrina on the Mississippi Gulf Coast, many people could not afford insurance even when the house was to be rebuilt to new standards. Rates eventually dropped but not too soon for many who moved inland.
Rates are based on where so moving inland a few miles made a tremendous difference in insurance costs. I recall a story about a property owner living along the Florida coast. After a major hurricane when insurance rates were adjusted, the annual cost for that property was over $40,000 per year. The owner had no choice but to sell. Unfortunately, no one would buy it with that insurance cost. She turned the property over to the bank and walked away.
Average Cost to Rebuild a House in the US
| Year | Average Cost to Rebuild a House in the US |
|---|---|
| 2018 | $275,000 |
| 2019 | $295,000 |
| 2020 | $320,000 |
| 2021 | $350,000 |
| 2022 | $400,000 |
| 2023 (estimated) | $450,000 |
Take action now to protect your investment
Don’t live without protecting your assets. This may sound like an advertisement for insurance, but it is not. Take action now to protect your assets. Arrange monthly payments for your homeowner’s insurance or borrow the funds from your bank and pay over time. Doing nothing is not a solution.
Did you know that insurance companies keep a record of all claims you make on your home or other property? It’s a fact, they do. The data is incorporated into the C.L.U.E. database. If you sell your house in a few years after making a claim, your name will come up in a search in the future. The data is supposed to be archived for between five and seven years, but public information tends to hang around longer. This is a good article about the system.
More resources:
Catastrophe Savings Account – The account allows savings to supplement insurance in the event of a catastrophe, this is a state deductible account. Put at least the amount of the deductible into the account over time.
C.L.U.E (Auto & Property Reports) – Obtain a report on your and/or your past property claims.
Directory of state insurance departments – Consult for regulations, complaints, and a list of licensed insurance brokers as a list of insurance companies licensed to offer policies in your state
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