AARP Hearing Center
If you’re like most folks, you seldom think about homeowner’s insurance until you have a claim — or your premium jumps. You pay it annually, or monthly along with your mortgage, and it protects your residence, personal belongings and other assets in the event of a disaster.
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Homeowner’s insurance premiums have been rising, largely due to inflation and a recent spate of natural disasters. The U.S. Bureau of Labor Statistics reports that the cost of building materials has risen 22.5 percent since last year, making the cost of replacing a home after a disaster much higher.
One way to offset the rising cost of homeowner’s insurance is to take advantage of discounts for steps you take to protect your home and reduce your liability if someone is injured on your property. But don’t be underinsured.
You’d be wise to revisit your policy now. According to one estimate, some 80 percent of the more than 1,000 homes lost or damaged in the Marshall fire in January, the most destructive in Colorado’s history, were underinsured. “There’s a greater risk of exposure than ever before,” says DeDe Jones, a certified financial planner (CFP) at Innovative Financial, LLC, in Lakewood, Colorado. “While it’s good to manage your insurance costs, be sure to balance that with the appropriate coverage.”
Which factors affect your premium the most? Do you have enough coverage? A careful review may reveal ways to qualify for discounts, as well as any coverage gaps you may have.
How your policy protects your home
An analysis by NerdWallet of 150 insurance companies in every state and the largest cities in the country shows that the average homeowner’s insurance premium is $1,784 a year. That’s for $300,000 in dwelling coverage and $300,000 in liability, with a $1,000 deductible. Dwelling coverage applies to damage to your house, while liability pays for injuries to other people while on your property. The deductible is the amount you must pay before the insurance company does.
Typically, standard homeowner’s policies cover damage from fires and/or smoke; lightning strikes, wind or hailstorms; power surges or explosions; heavy snow or ice; and theft or vandalism. Coverage may extend to other events, including dog bites, tree removals, mold, water damage, foundation issues or roof leaks.
Standard homeowner’s policies don’t cover earthquakes, floods, acts of arson, pests or problems with your home due to age or routine wear and tear. Pay attention to the details in your policy’s statement of coverage. Should your pipes spring a leak, you may be covered for water damage but not for pipe repairs. Insurance generally covers damage that is sudden and accidental; damage from long-term wear and tear usually isn’t covered.
Your premium could jump for several reasons. As the cost of rebuilding rises, dwelling coverage limits must increase to keep pace with rising prices. That’s especially true in states that are prone to, or have already experienced, disasters. Insurance companies have sustained losses in recent years due to hurricanes, tornadoes and wildfires, as well as the severe, unexpected cold snap in Texas in February of 2021. To make up for losses, they raise their rates.
