Understanding the Factors behind High Home Insurance Bills
Homeowners insurance rates have been on the rise, and it’s not just because of natural disasters or living in a high-risk area. A recent analysis by Policygenius revealed that homeowners experienced an average increase of $244 in premiums between May 2022 and May 2023. Furthermore, these rates are expected to continue increasing in the coming years. So, what exactly is driving this upward trend in home insurance bills?
One of the main factors contributing to higher premiums is rising construction costs. Building materials and skilled labor have become more expensive, which directly affects the cost of rebuilding a home in the event of a partial or complete loss. The value of your home plays a significant role in determining your insurance premium, as the higher the value, the more expensive it is to replace. Inflation has further escalated building costs, making homes even more valuable to replace. Since 2020, construction materials have seen an 83 percent increase in costs, with wood prices rising by 16 percent and steel prices by 22 percent in 2023 alone. These escalating costs put additional pressure on homeowners’ insurance premiums.
Another contributing factor to increased premiums is the abundance of natural disasters in recent years. Wildfires in California, Hawaii, and Texas, along with hurricanes in Florida, have resulted in record-setting claim payouts for insurance companies. To offset the risk of homeowners filing claims, insurance carriers have had to raise premiums. In some cases, insurance companies have even reduced their exposure in high-risk states by not writing new policies or completely pulling out of certain states. This has forced homeowners to turn to excess and surplus (E&S) insurers, which are not regulated like traditional insurers and can charge higher premiums due to their willingness to take on more risk.
Interestingly, marital status can also impact insurance rates. Statistics have shown that married couples have a lower probability of filing claims, leading insurance companies to offer lower premiums to those who are married. Additionally, the age of a home can affect insurance premiums. Older homes with aging materials are more susceptible to damage, such as burst pipes or windstorm damage. Homeowners who upgrade these vital systems should inform their insurance agents, as it could potentially lead to lower premiums.
Pets can also play a role in determining homeowners’ insurance premiums. Large dogs or exotic pets that could pose a danger may lead to higher premiums, as insurance companies account for the “bite” risk. However, if you have a service animal, you may be able to qualify for a premium reduction, so it’s worth checking with your agent.
Furthermore, an “attractive nuisance” in your yard, such as a trampoline or a pool, can impact your home’s general liability policy and result in higher rates. Insurance carriers consider these attractions as potentially drawing children into your property and increasing the risk of accidents.
Lastly, your claims history can have a significant impact on your premium. Multiple claims in the past signal to insurance carriers that you pose a higher risk, leading to potential rate increases. Claims remain on your Comprehensive Loss Underwriting Exchange (CLUE) report for seven years, and some insurers may raise premiums by as much as ten percent after a claim.
It’s important for homeowners to be aware of these factors and stay in touch with their insurance agents. Regularly updating them on home upgrades or changes in circumstances can potentially lead to lower premiums. While the rising cost of homeowners insurance may be concerning, understanding the factors behind it can help homeowners make informed decisions when it comes to protecting their homes and finances.
In conclusion, rising construction costs, an increase in natural disasters, marital status, home age, pets, attractive nuisances, and claims history are all contributing factors to the rise in homeowners insurance premiums. By staying informed and proactive, homeowners can navigate these challenges and potentially find ways to lower their insurance bills.
