The cost of homeowners insurance is on the rise nationwide, driven by a confluence of factors, including inflation and the increasing frequency of costly natural disasters. States like Florida, Louisiana, and Colorado have seen some of the most significant rate increases, primarily due to the extensive damage caused by hurricanes and wildfires. With climate change making these disasters more frequent, high insurance rates could become a new reality for homeowners across the country. In this article, we’ll explore six strategies to help you afford your homeowners insurance and secure your property effectively.
1. Be Proactive: Communicate with Your Insurer
If you’re concerned about your ability to make your next homeowners insurance payment, don’t wait. Reach out to your insurance agent or provider well in advance of your due date. While there may be a grace period for late payments, allowing your policy to lapse can have adverse consequences. It not only makes it harder to find affordable insurance in the future but also leaves your property unprotected. By initiating contact with your agent or insurer before your payment is due, you can explore potential solutions, such as additional discounts or alternative payment plans.
2. Raise Your Deductible
Your homeowners insurance deductible is the amount you must pay out of pocket when filing a claim. Increasing your deductible can lead to significant savings on your annual premium. For instance, if you raise your deductible from $1,000 to $2,500, you can enjoy an average annual savings of 11%, according to NerdWallet’s rate analysis. However, keep in mind that a higher deductible means you’ll need to cover more of the expenses in the event of a claim.
3. Shop Around for the Best Rates
Each insurance company employs its unique rate calculation methods. If your current insurer becomes too expensive, it’s wise to explore other options. You can obtain home insurance quotes online, contact insurers directly, or work with insurance agents. While some companies, like State Farm, have their exclusive agents, others utilize independent agents who can provide rate comparisons from multiple insurers. We recommend obtaining at least three quotes to ensure you’re getting a competitive price. If you’re in a region where insurers are withdrawing coverage due to climate risks, consult a knowledgeable independent agent who can help you access last-resort insurers, like Fair Access to Insurance Requirements (FAIR) plans.
4. Check for Eligible Discounts
Most insurance companies offer various ways to reduce your policy’s cost, such as bundling multiple policies, using smart-home devices, or belonging to specific professions. Consult with your agent or company representative to ensure you’re taking advantage of all available discounts. Additionally, making home improvements that reduce the risk of future claims, like adding hurricane shutters in hurricane-prone areas, can lead to additional savings. When considering such upgrades, be sure to weigh the cost against potential savings, especially if you have a limited budget.
5. Improve Your Credit Score
Although improving your credit may be challenging if you’re struggling with bills, it can lead to lower homeowners insurance premiums in most states. Many insurance companies use credit-based insurance scores, similar to traditional credit scores, to determine rates. Studies have shown that individuals with poor insurance scores are more likely to file claims, resulting in higher premiums. Homeowners with poor credit often pay nearly twice as much for insurance compared to those with good credit. However, it’s important to note that the use of credit to set insurance prices is not permitted in California, Maryland, and Massachusetts.
6. Update Your Coverage
If you’ve exhausted other options and still find homeowners insurance unaffordable, consider modifying your policy to reduce costs. For example, you can remove optional coverage for items like identity theft or the breakdown of major appliances. Adjusting your roof coverage from replacement cost to actual cash value is another potential cost-saving measure. Keep in mind that reducing coverage is a last resort and carries some risk. If you’re underinsured and an incident occurs, you may have to cover a substantial portion of the expenses out of pocket. Nonetheless, having some coverage is preferable to having none.
What to Avoid
While exploring ways to lower your insurance costs, one approach we strongly discourage is canceling your homeowners insurance altogether. For individuals with mortgages, maintaining homeowners insurance is typically a requirement of the loan. If your lender discovers that your coverage has lapsed, they may purchase a policy on your behalf, known as “force-placed insurance.” This type of insurance is often more expensive than a standard homeowners policy and provides less coverage. For those without a mortgage, opting for no homeowners insurance is a risky choice. Without coverage, you may lose everything in the event of a fire or tornado, leaving you with no place to live and no financial support for rebuilding. It’s advisable to maintain some level of homeowners insurance unless you have a substantial financial safety net.