Have you seen your homeowners insurance premium lately? It could be a shocker.
Premiums are up by 25% to even 35% in some states at the same time that homes aren’t worth what they may have been five years ago. What’s going on? A few things actually.
First, the fact that your home is down in value is irrelevant for homeowners insurance. The cost to rebuild or replace your home from the ground up in today’s market is still very expensive per square foot. So the big problem is actually that the cost of replacing is greater than the stated amount of insurance on homes. Even in a down market, many homeowners are underinsured and should actually raise the amount on insurance on their home.
Second, insurers traditionally collected your premium money not with the idea of getting rich on premiums, but with an eye toward investing the money in commercial real estate or bonds. But now insurers are having trouble making money investing your premium dollars. So they have to make the premiums side of the equation profitable on its own, hence the higher rates.
Finally, it seems we’ve had a natural disaster a week around the country, so now all those claims are coming in. It’s tough on the claims sides for insurers. All these factors have lead to increases in homeowners insurance premiums.
Thankfully, you can find big differences among different insurers for the same coverage if you shop around. So if a notice of a premium increase gets you to shop your coverage, go for it. But one caveat: If you’ve switched insurers recently, don’t switch again. Having years with an insurer has value.
Consumer Reports does a great job ranking homeowners insurance companies in terms of how well they handle claims. It might be worth it to pay for onetime access to their site to see what they have to say if you’re shopping around.