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The steady rising cost of homeowners insurance can make some homeowners wonder if it’s still worth the investment, but according to experts, the short answer is yes.
Simply put, homeowners insurance protects you from paying for costly damage in the event of a disaster, accident or theft. The exact amount of protection depends on your policy, which is why it’s important to shop around and compare prices. In most states, consumers have dozens of choices of both regional and national insurers, but there are some states like Florida and Louisiana where it’s become increasingly challenging to find a policy that works for you.
By law, homeowners aren’t required to buy home insurance, but many banks require it to obtain loans. The cost is often rolled into an escrow account and included with your monthly mortgage and tax payments, but insurance can also be paid annually or even monthly on its own.
Most homeowners have homeowners insurance — only about 7% of them don’t, according to the most recent data from the Insurance Information Institute (III), a nonprofit organization that provides research and education to help consumers gain a better understanding of insurance.
“Typically, people without home insurance don’t have a mortgage because of a cash sale or because they’ve already paid off their mortgage,” says III spokesperson Mark Friedlander. “They’ve determined they’re willing to take the risk that they can recover from a catastrophe without insurance. But catastrophes can devastate families financially and going without insurance even when it’s not required can make it very difficult to recover from a major loss.”
If you’re considering getting homeowners insurance or looking to switch providers, here are some important things to keep in mind.
The national average for annual homeowners insurance premiums is $1,544, according to III. But in states such as Florida, that number can increase considerably — to a whopping $4,231 in the Sunshine State, according to Friedlander.
“This year alone, premiums are averaging a 9% increase, which is over the inflation rate,” he says. “In Florida and Louisiana, it’s 33% and 30%, respectively.”
Storm damage is a huge culprit of rising costs, but it’s not the only one. “The primary driver is excessive levels of litigation combined with roof replacement schemes, where contractors trick homeowners into ‘upgrading’ their roofs when they don’t really need to,” Friedlander says.
Deductibles refer to the amount the homeowner is responsible for before insurance kicks in. “The higher your deductible, the lower your premium, but you pay much more out of pocket,” Friedlander says. “The trend we’re seeing is toward higher deductibles to save on monthly premiums, likely because of inflation.”
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Many homeowners assume just about every accident or disaster is covered under their policy, but that’s not always the case.
“The two biggest categories of non-inclusion are earthquakes and floods,” Friedlander says. Ultimately, it’s important to look at the exclusions in any given policy, as you might find that
Coverage can vary greatly from plan to plan, but most standard policies cover the following five pillars:
This refers to the cost of rebuilding the structure of your home if it’s damaged. This typically includes the home itself as well as any adjacent or nearby structures such as a garage, a guesthouse, or even a gazebo. “All of this would be considered part of the residence,” says Dave Phillips, a spokesperson for State Farm, the nation’s largest home insurer.
From clothing to furniture to appliances and more, this covers the cost of replacements and repairs in the event of things like theft or fire. “This part of your policy often has a coverage cap, so if you have expensive items that exceed that, such as furs or art, you will need to add a separate personal articles policy,” Phillips says.
Home insurance typically pays for some medical expenses and property damage in the event that your dog bites someone else on property, or your child throws a ball through the neighbor’s window. It also pays for legal bills should you ever get sued for injury or damage. Limits are usually around $100,000 but they can be upgraded up to $500,000. Anything more would require you to obtain an umbrella policy that gives you anywhere from $1 million to $10 million in additional liability coverage.
This covers you if a guest is hurt on your property, but it typically pays between $1,000 and $5,000. Some homeowners ask for it to be removed from their policies to save money, but it’s considered standard.
In the event that you are unable to inhabit your home because of an occurrence covered by your policy, “loss of use” expenses such as hotel bills, meals, and more are covered by most policies.
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It’s estimated that up to 85% or 9 out of 10 homes in the U.S. are not insured for floods, the most common and deadly natural calamity. Flood damage claims typically exceed $42,000, so if you live in a state where flooding is common, you may want to look into a flood policy provided by a federal flood insurance program, such as floodsmart.gov, or via a private flood insurance program. The latter market is growing with about 50 companies providing flood insurance now, says Friedlander.
“Another exclusion that can be added back in as an addendum is the backup of sewer and drains,” Phillips says. Anything caused by earth’s movement such as earthquakes, mudslides, and volcanic eruptions are typically not covered but some of the damage caused by them is, such as if an object strikes your home. Some insurance providers are willing to work with you to add some of these clauses in for a fee, so it’s important to ask about all your options regarding exclusions.
Finally, damage from mold and intentional losses caused by arson, neglect, or infestations are also typically excluded.
Bundling your home and auto insurance with the same insurer can save you 15 to 20 percent when it’s available, according to Friedlander, but in states with severe weather patterns such as Florida and Louisiana, it’s getting harder to find companies that offer that.
Taking steps to make your home more resilient, such as investing in fortifying your roof, installing hurricane-grade windows and doors, and changing the vegetation to further protect you from wildfires are more ways to save on home insurance. If your home is considered a smart home with technology that protects you from fire and other perils, that can help, too, he says. Even just being a longtime customer with zero claims can go a long way or living close to a fire station. Things can change from year to year, which is why an annual review of your coverage is important. In some cases, home insurers will change their coverage policy and if you’re not paying attention, you can end up being responsible for more than you think.
A home inventory can help you be better prepared in the event you need to file a home insurance claim. “You can use a video camera to record everything that you have inside your home, and some insurance companies have online tools you can use, too,” says Phillips. This can significantly speed up the recovery process in the event of a disaster or accident.
“It’s one of those things that until you need it, you don’t realize how important it is to have had it,” Phillips says. “It’s the same with life and auto insurance, having it gives you peace of mind.”
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