The cost of homeowners insurance has been on the climb in recent years – particularly in disaster-prone areas. By one estimate, home insurance prices saw a 7% increase in 2022 and are projected to go up again by 9% in 2023. Some of the key factors driving premiums upward include inflation, higher construction and rebuild costs, as well as the increasing frequency of extreme weather events.
In response to the rising costs, some homeowners might be tempted to reduce or drop certain policy coverages in hopes of lowering their premiums. But keep in mind that inadequately insuring your home carries a big potential risk: You may find yourself having to shoulder unexpected out-of-pocket costs to repair your home should a natural disaster arrive at your doorstep.
So what else could homeowners do to help manage insurance costs? After all, things like inflation and the weather are largely out of our control. Here are six tips we want to share.
Whether you’re a first-time homebuyer or a homeowner, it’s important to understand the potential climate risks your property may face, so you can be prepared to deal with any related costs down the road.
Depending on where you live, you may be more exposed to certain natural disasters such as floods, wildfires, hurricanes and drought, which could impact your insurance rates, utility costs and frequency of home repairs. If you live in a particularly vulnerable or high-risk area, this could also affect your ability to purchase a policy or certain coverages.
For instance, not many people are aware that most home insurance policies do not cover flood damages; you may have to turn to the government for options through the National Flood Insurance Program.
When buying a home, your real estate agency may include information about potential climate risks in their listings. You could also talk to your agent to go over your concerns.
But it’s a smart idea to do some additional research for your property. The federal government suggests the following online tools for prospective and current homeowners:
Reviewing the details of your insurance policy at the start of each year or whenever your policy is up for renewal is a good habit to get into.
That way, you can stay on top of any renewal changes that might affect your coverage (e.g., deductible amounts, exclusions, limitations, etc.) and make sure your home is adequately insured. For instance, double-check to see if your policy actually covers the replacement cost of your home.
Ideally, you don’t want to be underinsured or overinsured. Being underinsured could mean more out-of-pocket expenses for you when you file a claim. And if you’re overinsured, you may be paying for coverage you don’t need. If you don’t know what your policy covers, get in touch with your insurance agent and review the details together.
Also, if you’ve been experiencing more extreme weather in your area, ask your agent what kind of policy adjustments might be needed to address those climate-related risks.
Some insurance companies offer policy discounts if you take steps to help protect your home against the risk of loss or damage. As you’re reviewing your coverage details with your insurance agent, ask about those discounts. Are there certain weather-proofing home improvements you can make to help you save on premiums?
For example, if you live in a hurricane-prone area, some insurance providers offer discounts if your home is equipped with reinforced doors, hurricane shutters or impact-resistant windows/roofing.
Good to know: Not all insurance companies may offer these discounts and the qualifying rules may vary from state to state. So always contact your insurance company for the most up-to-date information.
Raising your deductibles is a common way to help lower your monthly insurance premiums. (A deductible is the amount you have to pay out of pocket whenever you file a claim for a covered loss or damage.)
It’s important to remember that while increasing your deductibles could help you save on premiums – typically, that also means you’ll be paying more yourself towards any insurance claim.
So whether this option is right for you will depend on your financial situation. For example, do you have enough in your emergency fund to help cover your deductible payments or any other unexpected expenses that might crop up?
Doing some comparison shopping could help you find more competitive rates out there. When comparing prices, however, just make sure you’re also comparing the coverages and coverage amounts as well. Sometimes a more affordable rate may not provide the right level of coverage you need to protect your home.
And don’t forget to weigh in other factors such as customer service, claim response time and the reputation of the insurance company.
If you’re satisfied with your current insurance company, another possible way to save on premiums is to bundle multiple insurance policies (e.g., home, auto, boat, etc.) with the same provider. Some insurance companies offer multi-line policy discounts. Also, if you’ve been a long-time customer, don’t be shy to ask about a loyalty discount.
Certain states allow insurance companies to use a credit-based insurance score to help them set policy premiums and renewal rates.
Be aware that this insurance score isn’t exactly the same as your credit score. Even though they may sound similar, they measure different types of risk. While your credit score helps to assess your creditworthiness, your insurance score is used to assess the likelihood or probability you’ll file an insurance claim as a policyholder.
But similar to your credit score, your insurance score is partly determined by what’s in your credit report – such as your overall credit history, payment history and credit utilization.
All this is to say: Maintaining a good credit history and credit score could help you with your insurance score as well. And according to Experian, a national credit bureau, “a better credit-based insurance score will likely result in better insurance premiums and rates.”
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs® but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.