Monday, August 15, 2022

Why Do Home Insurance Rates Go Up

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Why are home insurance rates going up and how that can affect the real estate market in Florida.

Maybe youve added a swimming pool, trampoline or wood stove to your property. These are called attractive nuisances by insurance providers. Your insurer will consider your home to be a higher risk compared to homes without these things. That means you may see your homeowners policy rates rise.

A pool or trampoline will increase your rate by an average of 8%, or about $155 a year. A woodstove in your home ticks up costs by 4%, or about $90 a year. If you have added one of these to your home, you may be tempted not to tell your carrier to avoid paying more. You wouldnt be alone. Insurance.com conducted a recent survey of 1,000 homeowners and found that 13% acknowledged not notifying their insurance company after adding a pool. A third of those surveyed who bought a trampoline didnt tell their insurance company. Dont be one of these homeowners. Failing to notify your insurer means if there is an injury or damage done from one of these items, you wont be covered and will have to pay for the repairs yourself.

Become A Better Insurance Risk

Risk plays a big part in determining your insurance costs. The riskier a person or property is to insure, the higher the price tag for insurance climbs. Ask your insurance agent what you can do to make your home less expensive to insure. Making changes that reduce the risk of damage in windstorms and other natural disasters is one example. Another is updating old wiring or heating systems, which may reduce your risk of fires, therefore, reducing your premiums.

Insurers shy away from some risks. For instance, owning certain types of dogs such as Rottweilers, Doberman pinschers, and pit bulls can limit or void your policy. Owning a swimming pool or a trampoline can increase your cost of coverage. Read the fine print in your policy under the “Conditions and Coverages” sections, so you know all the things that are excluded from coverage. You may opt to buy additional coverage to protect yourself from certain exposures.

Reasons Why Your Home Insurance May Be Going Up

You haven’t filed any claims, so why is your home insurance going up? It’s a common question that boils down to insurance trends. Insurance rates are based off more than just your personal claims history. They also take into account your company’s claims experience and the types of claims they commonly deal with.

Here are five reasons why your home insurance may be going upand one easy way you can save on your home insurance.

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Scenario 1 Manufactured Damage

  • A contractor sends a solicitation or knocks on an insuredâs door saying that he or she has been able to get a âfree new roofâ for neighbors in the area and theyâd like to inspect the insuredâs roof
  • The contractor goes on the roof and creates âdamageâ with a hammer or other method
  • The contractor tells the insured that they have damage from a prior storm and that the contractor can get them a new roof from the insurance company
  • The contractor submits an insurance claim

Rising Construction And Labor Costs

Why did my homeowners insurance rates go up?

Finally, construction material and labor costs are on the rise due to inflation. Therefore, the cost to cover your home will not be the same as your coverage amount when your home was first built, especially if your home is older. Consequently, you will have to pay more for your home insurance so your home is not underinsured. Homeowners insurance providers will usually have optional coverage that protects policyholders from inflation. This adjusts the coverage amount on your policy when the replacement cost of your home also increases, says Menuey.

In 2021, homeowners insurance providers saw a combined ratio above 100%, which indicates that home insurance companies experienced a significant loss in profit due to natural disasters, population shifts, and inflation, reports the III. Many insurance companies will have to raise their premiums to remain profitable and meet financial obligations to policyholders.

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You Made Some Big Home Improvements

Home improvements increase the value of your home, and they also increase how much it would cost to rebuild your home. As you mightâve guessed, that can make premiums go up. Thatâs especially true if the improvements add square footage or substantially increase the quality of a room, like if you upgrade from particle board cabinets to custom cherrywood cabinets. Thatâs a big difference in the cost to replace them if you have a claim.

Reinsurance Rising For All

Recent increases in reinsurance costs also contribute to Floridaâs rising home insurance rates. Reinsurance is essentially insurance for an insurance company, and itâs a necessary part of an insurerâs ability to pay claims ï¹ particularly in catastrophe-prone states like Florida. But sometimes the cost of reinsurance goes up, and when it does, so can homeowners insurance premiums.

Like insurance fraud, rising reinsurance costs impact more than just Florida. The Guy Carpenter Global Property Rate-on-Line Index, which covers the worldâs major reinsurance markets, was up 10.8 percent in January 2022ï¹more than double the increase seen in the January of last year.

Again, you should note that this is a global index, so it includes other catastrophic events, such as European floods and Asian typhoons. Areas with more severe and frequent events can see even greater increases in reinsurance costs.

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Construction Costs May Have Skyrocketed

Your rates are generally determined by the coverage amounts in your policy. Your homes rebuild cost, or dwelling coverage, is a key determiner of how much youll pay in premiums the higher your dwelling limit, the higher your premiums will be. A key indicator of your homes rebuild cost is the price of local construction materials and labor, and when construction costs increase, your dwelling limit may need to increase as well.

Construction costs can jump for a variety of reasons maybe they went up because a number of weather catastrophes increased demand and shortened supply, or maybe a proposed tariff increase caused the spike in construction costs. Be sure to check your policys your home insurance company is required to inform you before they make any changes to your coverage, but they may not tell you that your rates are about to spike.

Are All Home Insurance Policies Affected

Why are my auto and homeowners insurance rates going up?

Although the cost of home insurance may be increasing, this doesnt mean that all home insurance policies will be more expensive. Your home insurance premium is based on individual rating factors such as where you live, the age and square footage of your home, and the claims rate of your area.

Additionally, the selected coverage and limits of your policy play an important role in your home insurance premium. Personalizing your policy with add-on endorsements can provide more protection with an additional fee, but taking advantage of discounts could be highly beneficial to making the final premium more affordable.

Also keep in mind that you will know if your new policy premium has increased before your renewal date. Your insurance company will send renewal policy declarations, including the new home insurance premium, in advance, so you have time to assess whether your premium has increased, what changes you can make and if you need to shop around.

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The Insurance Company Simply Increased Rates

As we discussed earlier, rates are trending up industry-wide. Sometimes, its purely profit-motivated, as stockholders expect a certain return from a company they have shares in. But lately, the increase may be due to the industrys record-setting claims and losses ostensibly related to the winter storm, hurricane, and wildfire activity. In 2017, for example, California saw $14 billion in insured losses due to wildfires. In 2020, the Midwest was hit with a Derecho storm, resulting in billions of dollars in property loss.

You Have Attractive Nuisances

Be mindful, too, that some additions to your property are considered a safety hazard by insurance companies. These include any item that can cause bodily injury.

Youre required to notify your insurance provider if you install a swimming pool, swing set, or a trampoline on your property. If so, youll likely need to increase your liability coverage.

Liability offers protection if someones injured on your property. It can pay their medical bills and a court-ordered award.

A standard homeowners insurance policy typically comes with $100,000 of liability protection. But if you have safety hazards on the property, you might need to increase your liability coverage to $300,000 or $500,000.

You can even get an umbrella liability policy for up to $1 million.

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The Least Expensive States For Homeowners Insurance

The states with the least expensive average annual homeowners insurance premiums are Hawaii, Utah, Delaware, Vermont and Oregon. So, how much should you budget for homeowners insurance in these locations? These states have average premiums that are less than $1,000 per year, likely due to a relatively low risk of home damage. The table below shows the average cost of home insurance coverage in these states and how the prices compare to the national average.

State
$59-46%

These states may have a lower risk for natural disasters, and some could also have low premiums due to a generally low cost of living. The price of materials and labor may be lower in certain areas, which could mean you need less coverage to repair or rebuild your home if it is damaged.

Irmas Impact On The Insurance Market

Why Did My Homeowners Insurance Go Up? [4 Main Reasons]

While Hurricane Irma hit Florida in 2017, insurance companies saw claims from the storm steadily increase through 2019two years after the storms initial impact. Thats because a statewide law gives Florida homeowners up to three years from the date a hurricane makes landfall to report a hurricane claim.

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Irmas Cost To Homeowners Today

The high number of re-opened claims over three years, combined with AOBs, led to claims inflation and steady loss creep, which factored into this years reinsurance renewals. As a result, Florida homeowners faced significant insurance rate hikes in 2020.

According to Reinsurance News directory of major insurance and reinsurance loss events, Hurricane Irma resulted in an overall economic loss of $67 billion, including a reinsurance industry loss of $32 billion. But what is reinsurance, and how does it factor into homeowners insurance cost?

Increase In Catastrophic Losses

Fueled by climate change and rapidly changing weather patterns, the occurrence of natural disasters has increased in the past few years. Every season, different parts of the country are impacted by intensified storms like winter storms and hurricanes, or catastrophic dangers like wildfire and flooding.

The increase and heightened severity of natural disasters has resulted in staggering reconstruction costs. The Insurance Information Institute recorded 97 events that qualified as catastrophic losses in 2021, resulting in $92 billion of insured losses. This was up from 94 catastrophic events in 2020, resulting in $74 billion in insured losses. Although home insurance rates factor in estimated claims, losses of this magnitude forced many home insurance companies to take drastic action.

2019

*Losses in millions

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Reasons Behind Rising Costs

In most cases, both your annual property tax and your yearly insurance coverage will increase each year. Taxing authorities do this to provide for and improve things like roads, sewage systems, libraries, and schools. Insurance providers raise the cost of coverage to keep up with the increasing cost to repair or replace your homedue to inflation.

The age of your home will also affect the price of your coverage. Older homes have a greater need for repair and maintenance. The absence of security and safety features like lights and smoke detectors can impact your premium. Also, any claims you filed may increase the cost of your coverage as your insurance risk profile changes. Even if you did not file a claim, if you live in an area where the insurer had to pay for damages received by others, the company may raise their rates to all homeowners.

Average Cost Of Homeowners Insurance By State

Why Did My Home & Auto Insurance Price Go Up??
State
$16954%

The threat of natural disasters plays a significant role in determining your home insurance cost. The more likely that damage is to occur, the more likely that insurance companies are to have to pay out claims. This means that higher premiums must be charged for companies to have sufficient reserves to handle a large influx of claims. Knowing the risks associated with your state and ZIP code can help you make informed home insurance decisions.

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You Or Your Neighbors File A Lot Of Claims

If you have a long and detailed home insurance claims history of relying on your insurer to pay for every minor covered loss to your home, your insurer may quote you a higher premium to pay for all the damages. Conversely, if youve never reported any damages and have a clean claims record, your insurer may give you a lower rate.

Your rates are also impacted by how often your neighbors or people in your ZIP code file claims. If you live in a consistently burglarized or storm-ravaged area, it may not matter if you have a clean claims history if people around you dont, that may increase your premiums.

What Is Causing The Increases Of Home Insurance Premiums

  • Increased Litigation and Litigation Related Costs

Florida has seen a very substantial increase in the number of lawsuits filed related to home insurance claims. A Google search will provide various articles and reference to litigation trends. Between attorney fee multipliers and the shear increase in number of lawsuits, the litigation burden is playing a role in driving up premiums. In many cases, law firms are being rewarded substantially more than the homeowners themselves.

  • Fraud

Florida has regularly been in the news for fraudulent claims and some dishonest contractors. While this certainly is the exception and not the norm, the cost of paying claims that are fraudulent costs the insurance industry substantially and affects premiums.

  • Inflated repair costs

The costs to repair homes in areas badly damaged by major weather events can lead to loose claims handling. Because there are so many claims to process, it is easy for claims to be submitted with inflated repair costs. While this also falls into the category of insurance fraud it continues to happen with increased regularity.

  • Increased frequency of weather-related claims
  • Construction Materials

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Understand Your Homeowners Insurance Policy

Your home is your biggest investment. Make sure it’s adequately protected from risks you cannot afford to cover yourself. Providers will send several explanatory pages with your policy. Take the time to review these pages. Use the internet to search for any terms or coverage you don’t understand. Of course, if all else fails, call your agent and ask them what the coverage items or listed deductible mean. This annual review will help you understand where you are and are not protected.

Also, check to see what supplemental coverage you may need. This review is especially important if you live in an area that experiences severe weather situations, such as tornadoes, hurricanes, earthquakes, sinkholes, wildfires, or floods. Some items like wood privacy fences, pool or patio screen enclosures, and freestanding sheds may not be covered in the event of a loss. If you made substantial improvements or major purchases, make sure you have enough coverage to offset replacing those items.

Once a year, before your homeowner’s insurance policy is due to renew, dig out the current policy, read through all the details, and call your insurance agent to discuss any changes in your situation that occurred during the year. Make sure you’re addressing any new insurance needs and removing any coverage that’s no longer necessary.

When Can I Drop My Homeowners Insurance

Why Do Homeowners Insurance Premiums Go Up After A Claim?

Your lender will usually require you to have homeowners insurance as long as you have a mortgage of any kind on your property. Even when you fully pay off your loan, however, you should think twice before canceling your home insurance policy. Consider whether you would be able to pay for major repairsor even completely rebuilding your homein the event of a disaster. If not, then opting for a higher deductible will lower your premium and increase your out-of-pocket costs for repairs without fully exposing you to the risk of a disaster.

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Keep Your Credit Score High

Another way to reduce your home insurance costs is to pay attention to your credit score.

Its a well-known fact that actuaries really love numbers. They crunch statistics on weather, claim location, age, occupation, home size and a raft of other factors to help determine insurance premiums. But the one factor actuaries love the most is your credit score. As one industry insider explained: If I could use only one metric to assess risk and set pricing, I would choose credit scoring. Nothing else.

On the surface, the use of credit scoring appears to benefit homeowners who work, pay their bills on time and are responsible members of society. But studies out of the U.S. show that while credit scoring favours responsible credit users, it can penalize other insurance clients unfairly.

According to the studies, anyone who is in a lower income tax bracket, pays cash for most transactions, is retired or is single can be penalized when credit scores are used. If you pay bills in cash or rely on a line of credit or loan, like a small business owner often does, then youll have a terrible credit score even if you always pay your bills on time, explains Michael Brattman, the former vice-president of personal insurance at Erb Insurance Brokers.

For the average homeowner, the key is to check your credit history and credit score at least once per year. These days, its as simple as completing an online form or printing it off and mailing or faxing it to TransUnion and Equifax.

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