Why Are Your Home Insurance Bills So High?

Shutterstock

Everyone realizes eggs and gas prices have increased, but what about homeowners insurance? According to a Policygenius analysis, homeowners experienced higher premiums at an average increase of $244 between May 2022 and May 2023.

Rates are expected to continue increasing. And this is true even if you don’t live in a disaster-prone area. But why are homeowners insurance rates increasing yearly?

Rising Construction Costs

Building costs affect premiums. When the price of supplies and skilled labor increases, you will pay for it.

Rates are based heavily on how much the house is worth. This is the dwelling coverage in your policy. The more your home is worth, the more expensive it is to rebuild if there’s a partial or complete loss. And because inflation has increased building costs, your home is valued even more to replace.

It might have been initially built for $150,000 10 years ago, but now the cost has doubled. Land is not considered part of the insurance coverage.

Since 2020, there has been an 83 percent increase in construction materials. The average increase was 19 percent.

In 2023, there was a double-digit increase in building supplies. Some of these included a 16 percent increase in the price of wood. Steel increased 22 percent. Electrical conduit and insulation were 12 and 11 percent, respectively. And these are just increases in one year.

There’s also a skilled labor shortage. This has resulted in wage increases, supply-chain problems, and staffing problems

And when there’s a demand for new homes, it affects the cost of rebuilds. So, local costs for materials and labor are part of the replacement cost formula.

All of these have contributed to increased construction costs.

Abundance of Natural Disasters

In the past few years, the insurance industry has had record-setting claim payouts. Wildfires in California, Hawaii, and Texas.for example, combined with Florida hurricanes, have contributed billions of dollars of payouts.

In other parts of the country, hail and tornado damage has cost insurance companies.

Insurance carriers have had to raise premiums to counteract the risk of homeowners filing claims. Some insurance companies have reduced their exposure in high-risk states by not writing new policies. Other companies have just pulled out of states altogether.

Some of these states that have cut back or withdrawn from either Florida or California are:

• State Farm
• Allstate
• Nationwide
• Farmers

When traditional or admitted companies like these stop writing new policies, they force homeowners to go to excess and surplus (E&S) insurers. These are not admitted companies. That means these companies don’t have to run-rate increases or policy forms by any state’s insurance department like the traditional ones do.

An E&S insurer is willing to take on more risk because they can charge more. The result is even more high-cost premiums for homeowners.

Marital Status Skews Premium

It doesn’t matter if you’re a first-time homebuyer or a seasoned homeowner—your marital status can impact insurance rates.

Statistics show married couples have a lower probability of filing claims.

Insurance Premium Affected by House’s Age

Living in an older home can cost you. That’s because older homes’ aging materials are more susceptible to damage. An old pipe could burst. And although the pipe wouldn’t be covered, the damage done by the water would be covered.

Old electrical wires could start fires and a windstorm may easily damage an older roof.

So, if you upgrade any of these vital systems, let your agent know. It could save you money.

Type of Pet Affects Homeowners Premium

Pets can affect your premium. If you have a large dog or an exotic pet that could be dangerous, it will raise your premium.

Insurance companies may raise rates on homes with dogs to account for the “bite' risk. You may not have a large dog, but you might have to pay higher premiums if it has a history of biting.

Check with your agent if you have a service animal and see if you can qualify for a premium reduction.

An Attractive Nuisance Costs

An “attractive nuisance” is anything that could coax a child into your yard. This could be a trampoline or a pool.

This affects your home’s general liability policy. An attractive nuisance will cause higher rates. Some home insurers won’t insure homes with attractive nuisances.

Claims History Major Impact on Premium

Your claims history affects your premium. Multiple claims in the past is a red flag to an insurance carrier. They view you as a higher risk.

A claim stays on your Comprehensive Loss Underwriting Exchange (CLUE) report for seven years. Some insurers will allow a specific dollar amount of claims before a rate increase.

But there are some that, after a claim, will raise a premium by as much as ten percent.

Insurance Premiums on the Rise

Various factors impact your homeowners insurance policy premium. The two most important contributors are construction costs and weather.

Your home’s age can also contribute to a hefty premium. Keep in contact with your insurance agent and let them know about any upgrades.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.