Skyrocketing premiums is another source of inflation plaguing retirees.
Inflation is affecting homeowners insurance, but if you're tempted to cut costs by reducing coverage or, if you've already paid off your mortgage, consider eliminating it, think again. Just one severe storm could cause serious and unwanted changes to your retirement savings. Instead, consider shopping around for a new policy, and make sure you take advantage of any discounts available to you.
According to Policygenius, the average premium for homeowners insurance increased 12.1% from May 2021 to May 2022, and the average annual increase was $134. While there is evidence that homeowners insurance inflation is declining in 2023—Bankrate.com estimates the increase from 2022 to 2023 to be just 3%—inflation across the board tends to be cumulative: an increase of 12 % one year followed by another 3% is still an increase of 15% over the last two years.
Why Homeowners Insurance Prices Are Going Up
Inflation in all its manifestations has been the driving force behind rising homeowners' premiums, according to Michael Giusti, a senior writer and analyst at InsuranceQuotes.com. That includes supply chain issues. It doesn't mean there are shipping containers full of policies waiting to be unloaded at the Port of Los Angeles. But homeowners insurance covers home repairs , and many of the things you use to make repairs do come in shipping containers.
In February 2022, for example, the price of lumber skyrocketed to $1,337 per 1,000 square feet. Although later in the year the price of lumber dropped to $429 per 1,000 square feet, the overhead of home repair in 2022 was high. Similarly, prices for asphalt shingles and other roofing materials have risen 51% over the past five years. Insurers eventually have to recoup those costs through higher premiums.
Other ways inflation has affected homeowners policies:
Labour. You need workers to repair a home, and labor costs have also been rising. “If companies are paying their employees more, that causes their own prices to go up and, consequently, the costs to repair a home go up,” says Cate Deventer, an insurance analyst at Bankrate.com. According to the US Bureau of Labor Statistics, real hourly wages, adjusted for inflation, rose 4.6% in the twelve months ending in December.
Housing . Home prices have also seen big increases, which means the cost of replacing homes has gone up as well. According to the S&P CoreLogic Case-Shiller National Home Price Index, home prices have risen 8.9% each year for the past five years.
Interest rates. To combat inflation, the Federal Reserve has been raising short-term interest rates . Although there are signs that the plan is working, rising interest rates cause insurance costs to rise, Giusti says. “In the end, insurance companies are financial services companies, and they need to borrow money to do business,” he says.
More losses. Damage from hurricanes, wildfires, tornadoes and constant winds have become more frequent, and that means higher payouts for insurance companies, Giusti says. It doesn't matter if you live in Iowa, if your company operates in other states, you may pay higher rates because of your hurricane losses elsewhere.
reinsurance . Several insurance companies have reinsurance, which is insurance for themselves. “Any time there are general disasters like hurricanes and wildfires, that causes the cost of reinsurance to go up,” Deventer says. "It spreads the risk of certain high-risk areas around the world." When reinsurance policy premiums increase, your homeowners insurance policy will likely increase as well.
How to Lower Homeowners Premiums
When was the last time you looked for homeowners insurance ? The answer of many is “When I bought my home”. You might want to reconsider that strategy. “See what's available and get a better policy,” recommends Giusti.
However, search carefully. “ Make sure it's exactly the same coverage,” says Deventer. In some cases, the reason you receive a lower premium is because you receive less coverage.
Be sure to tell your insurance company about any discounts you may be entitled to receive, such as the installation of a burglar alarm, a new roof, or fire extinguishers . “If you've upgraded your electricity, plumbing or something like that, it can definitely change what coverage you need and what you pay for,” Deventer says.
The only thing you shouldn't do is remove the insurance entirely. "If you've already paid off your mortgage, don't take the risk and be left without insurance," warns Giusti. "For most people, their home is their greatest asset."
5 states with the lowest average annual homeowners insurance bill
Hawaii | $382 |
Vermont | $658 |
Delaware | $679 |
Utah | $696 |
Oregon | $723 |
5 states with the highest average annual homeowners insurance bill
Oklahoma | $3,659 |
Kansas | $3,083 |
Nebraska | $2,951 |
Colorado | $2,152 |
arkansas | $2,123 |
According to Bankrate.com, the average national homeowners insurance premium for a policy with $250,000 in homeowners coverage is $1,428 per year. These are the states with the highest and lowest annual homeowners premiums.
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