NerdWallet's Smart Money Podcast - Save on Home Insurance Amid Rising Costs and Coverage Hurdles

Episode Date: April 17, 2024

Learn why homeowners insurance costs are rising, tactics to find affordable coverage, and how to know if you have enough. Why are homeowners insurance costs rising? How can you tell if you have enough insurance? Hosts Sean Pyles and Anna Helhoski delve into the factors behind rising home insurance premiums, from climate change-induced disasters to inflation’s impact on repair costs. They’re joined by Caitlin Constantine, an insurance editor at NerdWallet, who breaks down the details. She shares actionable strategies for finding affordable coverage and navigating insurance challenges; insights into how to safeguard your home and budget; and tips for negotiating insurance rates and making informed decisions. Whether you’re a homeowner or renter, this episode provides insights into how to better manage insurance costs and understand the evolving risks of climate-driven financial challenges. In their conversation, the Nerds discuss: homeowners insurance, rising premiums, insurance costs, climate change impact, home insurance rates, uninsured homeowners, insurance affordability, property protection, natural disasters, insurance coverage, cost of insurance, insurance trends, home insurance quotes, insurance inflation, insurance migration, home insurance policies, insurance challenges, home insurance tips, affordable insurance options, insurance availability, flood insurance, insurance shopping, insurance market trends, insurance industry, home insurance market, disaster insurance, car insurance, homeowners coverage, insurance premium factors, home insurance insights, and climate-related insurance costs. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Today, we're talking about why homeowners insurance costs are so high right now. Yeah, the costs are so onerous that a lot of people are going without insurance at all. The Consumer Federation of America, an association of nonprofit consumer organizations, released a report recently that found 7.4% of homeowners in the country are uninsured,

and it's likely to get worse. That's right. And for context, 7.4% of homeowners translates to millions of people being left in the wind. That's wind in the figurative and literal sense, Sean. One of the major factors impacting climbing home insurance costs is climate change, specifically a climate change-induced uptick in natural hazards like wildfires, floods, and hurricanes. Coming up next, we'll talk through the home insurance landscape with Caitlin Constantine, an editor here at NerdWallet who focuses on insurance. Stay with us. Caitlin, welcome to Smart Money. Hi, Sean and Ana. Thanks for having me. Let's kick this off with some context. We say homeowners insurance has gotten pricier, but what does that actually mean? How expensive are we talking? Well, according to our

rates analysis, the average annual premium for home insurance across the U.S. has increased from $1,805 to $1,915 for a year-over-year increase of 6%. However, it's really important to note that home insurance premiums vary widely depending on where you live. So, for instance, in Vermont, the average annual rate is $870, while in Oklahoma, which sees a lot of tornadoes and hail, the average annual premium is nearly $5,500. Oof. Wow. Okay. So, Caitlin, why has homeowners insurance become so costly? At the top, Ana mentioned climate change, which seems like the big one. Climate change isn't the only reason, but it's one of the biggest reasons for sure. One way to look at this is through the increasing frequency of what are known as billion-dollar disasters, and those are disasters that cause more than a billion dollars worth of damage. The National Centers for Environmental Information reports that between

1980 and 1989, the U.S. saw 33 disasters that caused a billion dollars worth of damage or more. Now compare that to 2023, when we saw 28 of those disasters in one year alone. And now we've also seen an ongoing migration towards places that are higher risk of severe disasters, such as the Gulf Coast and the Sunbelt. For instance, four of the country's fastest growing cities are in Florida, which we know is uniquely vulnerable to hurricanes. So basically, it's a convergence of two long-term trends. More people living in places that see more severe weather means these disasters become that much more costly when they do strike. And has inflation played a role here too? Inflation plays a big role in this as well

by raising the cost of labor and materials. And that means that if a wildfire or a hurricane devastates your home, it's likely going to cost more to repair or rebuild it. And higher rebuilding costs equate to higher premiums. And Caitlin, there are some companies who won't even insure homeowners in certain areas. Is that right? Absolutely. We've been seeing this in Florida, Louisiana, and most recently in California,

where insurers like Allstate and State Farm recently announced that they would either no longer write new home insurance policies or that they're going to significantly scale back their home insurance business. And then we've also been hearing about homeowners who have had trouble finding insurance in parts of states like Colorado, Arizona, and Texas, especially areas that have a higher risk of wildfire. Caitlin, can you talk to us more about the findings in that report from the Consumer Federation of America? The findings from that report are quite sobering. So the CFA found that more than 6 million homeowners in the U.S. don't have home insurance,

and that breaks down to about one out of every 13 homeowners. And the CFA predicts that that number is only going to increase as the cost of home insurance continues to rise. Now, are there any trends related to income or location when it comes to homeowners who aren't insured? The report found clear trends along economic and racial demographics, including the fact that homeowners who make less than $50,000 a year are twice as likely to be uninsured as people who make more than that. People of color are also more likely to go without home insurance, with 22% of Native American homeowners, 14% of Latino homeowners, and 11% of Black homeowners going without insurance. In addition, the report found that 35% of people who own manufactured homes and 29% of those who

inherited their homes are also uninsured. There's a geographical aspect to this as well. So the report found that homeowners are more likely to be uninsured if they live in rural areas, if they live in the Houston or Miami metro areas, or if they live in New Mexico, Mississippi, or Louisiana. Okay. Do you have any advice for homeowners on how to save on insurance if their home is, say, on a floodplain or in an area that's more prone to other natural hazards? Well, the first thing that we recommend is that people should shop around for home insurance once a year. We suggest that people pull three similar home insurance quotes, which you can do online, and then use them to find a lower rate that you might be able to afford. But if you find this difficult due to a lack of availability in your

area, we recommend you reach out to a local independent insurance agent. They're going to be able to shop around for you, and they may be able to find a policy for you with an insurance company that may not be on your radar. Another thing you should do is make sure that you have enough insurance. As I mentioned earlier, inflation has caused the cost of materials and labor to go up in recent years, which means that some people may find themselves without enough coverage should they have to rebuild. And make sure to read your insurance policy carefully to make sure you understand exactly what's covered as well as any limitations. The time to discover that your home insurance policy doesn't cover flood damage, which by the way, it probably doesn't,

is before your home is flooded, not after. And you can also look into what steps you can take to mitigate the risks you're likely to face in your area. And that can mean investing in fire resistant siding or having flood vents installed. And your home insurance provider may offer discounts if you take these steps, so make sure to ask. All right, well, what if people go through all of those steps, but they still can't find affordable insurance? Well, if you exhaust all of these options and you still can't find insurance you can afford,

you may need to consider relocating. And I don't offer this lightly. I just moved from Florida to North Carolina two years ago, and I know how disruptive and stressful and expensive it can be. And that was even though my husband and I both have good jobs that allow us to work remotely. However, many people in parts of the countries that are increasingly uninsurable are finding that they have no choice but to pack up and move to a place where they can actually afford to insure their homes. So this is a bit of a tangent, but I know that auto insurance has also gotten more expensive recently. Is climate change to blame here too? Not exactly. While auto insurance has also gotten more expensive recently. Is climate change to blame here too? Not exactly. While auto insurance claims do tend to increase after disasters,

the connection isn't as direct as it is with home insurance. And a key reason is that when you're fleeing a disaster, you're probably going to do so in your car, whereas you can't take your house with you when you evacuate. The rising cost of car insurance actually has more to do with the fact that cars and their parts now cost more than they used to. So, for example, a fender bender now may involve replacing a camera and sensors. But 10 years ago, the repairs from a fender bender would have only involved metal or plastic. And then we're also seeing more wrecks and more car theft. And both of these are factors that drive car insurance rates up for the rest of us.

Caitlin, thanks for joining us today. Thanks so much for having me. That's it for this week's money news. We always welcome your money questions and comments. So turn to the nerds and call or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD or email us a voice memo at podcast at nerdwallet.com. And remember to follow, rate and review us wherever you're getting this podcast. Today's episode was produced by Tess Biglin and edited by Sarah Schlickler. Sarah Brink mixed our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not

apply to your specific circumstances. And with that said, until next time, turn to the nerds.