The impact of the pandemic and inflation on Homeowners Insurance premiums has been massive in the last 2 years, as we know the pandemic was a direct cause of the inflation. The definition of inflation is a persistent, substantial rise in the general levels of prices related to an increase in the volume of money and resulting in the loss of the value of currency. When the government sent Americans checks during the pandemic, that was an increase in the volume of money in part. Now we’re in the loss of value of the currency and substantial rise in the general level of prices part.
The effect of climate change on Homeowners Insurance Premiums
What does this have to do with your insurance Premiums?
Because everything costs more. It costs more to repair, costs more to replace. But wait, there’s more. We’re also seeing extreme weather thanks to global warming. Where we might have seen only a few tropical storms in the past that turned into hurricanes, now we’re seeing far more tropical storms to begin with. They’re popping up in places that they haven’t popped up in the past. That’s just the tip of the iceberg. See what I did there?
The role of Insurance Companies in the current market
We also have the law of supply and demand to contend with, both in actual products for your home and insurance companies simply leaving areas and states. Fewer companies mean less competition, which means prices rise because there’s simply nobody else to offer coverage. According to a Policy Genius analysis of homeowners insurance premiums from May 2022 to May 2023, they increased 21% on average, and increases are expected again in 2024.
Insurance companies are pulling out of these high-risk areas, something that shouldn’t even be allowed in my opinion, but nobody asked me. You also have insurance companies going bankrupt, which is shocking because other insurance companies report record profits. Great, nice for them.
Some people have been talking about how property insurance was potentially going to go up from $4,000 a year to $112,000 a year. Last year, the insurance company went out of business and their policy was taken over by another company that is required to insure everyone.
The Importance of Homeowners Insurance in Investment Planning
This very, very important item, homeowners insurance or landlord policy, might not be at the forefront of an investor’s mind when they’re running their numbers. You think of the rent you can charge, you think of your debt service. If you’re perfect, you’re thinking of capex and vacancy and planning for repairs. But homeowner’s insurance has a way of slipping to the back of your mind, probably because you never use it until you need it. In the case of my Florida friend, she would have been paying $8,000 a month just for insurance, and you can’t simply skip insurance. Well, I mean, I guess you can, but that is a guarantee for a disaster.
Proactive Measures For Homeowners
- So, what can you do? Be proactive and educate yourself.
- Who is offering coverage in your area?
Call up insurance companies to get quotes for coverage, and re-quote every year. Your insurance company is not going to reward you for your loyalty, so don’t reward them with yours when it comes to price increases. Shop around and don’t be afraid to ask for discounts. Ask your insurance company.
Some common discounts are bundling or multiple policy discounts. Even if you only own one property, you can still take advantage of this by insuring your car with your home or your primary residence and your rental property and your car.
The more you insure with this company, the more you save. Also, ask them what other types of insurance they offer. Perhaps they offer something that you need, making an even bigger bundle, making even more savings.
Strategies for saving on Homeowners Insurance Premiums
Insurance companies also offer claim-free discounts, meaning you pay less if you don’t use it. Yay! Ditto for having safety devices like smoke and fire alarms, sprinkler systems, and a higher-class roofing shingle. Frankly, there are too many to list here, but ask your insurance company, “What safety features get me more discounts? What discounts are offered?” Your insurance company is going to be the one that will give you all of this information, so ask your insurance agent, and don’t be afraid to look cheap.
The Role of Deductibles In Homeowners Insurance Policies
Finally, consider increasing your insurance deductible. This is the amount that you pay before the insurance kicks in. But be careful because your lender might have something to say about what your deductible can be.
Make sure you can cover it. For example, if you have a $10,000 deductible on your primary residence. Conveniently, that’s the same cost it was for the new roof that I just quoted. If you need a new roof, that’s coming out of your pocket, but also you should know that when you set that as your deductible, you could cover it.
Choosing the right Insurance Company for Homeowners
One last tip, not all insurance companies are the same, so your price shouldn’t be your only consideration. A no-name company will almost assuredly offer no-name customer service. As I mentioned earlier, price increases are predicted for 2024. Make sure to have a great landlord insurance company.
Be proactive with your investments and don’t get caught off guard by a giant rate increase. Know who’s offering coverage in your area when your policy is due for renewal, and don’t be shy about asking for discounts.