“My deductible is $5,000.” (Photo subject is a model.) – Getty Images/iStockphoto
It’s a short question, but an important one: Is it too reckless to cancel homeowner’s insurance? I’m not sure I can justify $4,000 a year anymore. (I have no mortgage.) My deductible is $5,000.
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Your home insurance is roughly double the average home insurance cost incurred by the average homeowner. – Marketwatch illustration
Canceling homeowner’s insurance isn’t necessarily reckless, but it’s financially risky if you don’t have a very large emergency fund—and no appetite for risk. Insuring can be a regrettable decision if your savings are much smaller than the cost of repairs or reconstruction, you cannot cover a large claim without severe financial hardship, and/or you want peace of mind rather than the risk of worst-case loss.
A standard homeowner’s policy covers most — but not all — major risks, and excludes things like floods and earthquakes unless you purchase separate coverage. But you also buy yourself peace of mind and the knowledge that should your roof blow off during a storm, or – God forbid – there’s a fire due to faulty electrical wiring or an adapter that doesn’t carry the voltage, you won’t have to face thousands or potentially hundreds of thousands of dollars in expenses that you could incur. You, in other words, will not be homeless.
About one in four owner-occupied homes in the U.S. is not insured. That’s according to this study from LendingTree last year. That’s partly because some homeowners, like you, say they can’t afford the premiums, and partly because of climate change, and because some people can’t afford to insure their homes even for extreme weather. So you’re not the only one faced with this choice: struggle to pay rising premiums or go without insurance – and risk devastating financial costs.
“This has been particularly evident in states like Florida, California and Louisiana, where insurers have pulled out or dramatically increased premiums in response to growing climate threats,” the report said. “With fewer insurers in the market, homeowners have limited — and often prohibitively expensive — coverage options. In some cases, premiums have doubled or tripled in a few years, making it financially impossible for many homeowners to maintain coverage.”
Your home insurance isn’t cheap, there’s no denying it. In fact, this is almost double the average home insurance cost incurred by the average homeowner. The average American pays about $2,500 per year for home insurance, according to a survey by Bankrate, a personal-finance site. That’s an increase of nearly 10 percent over the past three years. (This does not include property taxes, which can range from $1,500 to more than $7,000 per year, depending on where you live and the size of your property.)
Without a mortgage — congratulations, by the way — you have no lender requirement to carry insurance, so you remain personally responsible for all losses related to your home. This covers not only damage to your home but also liability claims if someone (including house guests) is injured on your property. Owning your home outright does not eliminate these risks. Going without insurance only makes sense if you have enough liquid assets to cover the worst case scenario. That could be thousands or, in the case of liability insurance, even millions.
Homeowner’s insurance can be negotiated to lower premiums before a claim and improve settlement after a loss. Ask potential insurers about security systems, smoke detectors, energy ratings, smart-home technology, paperless billing — or discounts for nonsmokers. Bundling home and auto policies with the same provider can save up to 20% in some cases. Raising your deductible can also lower premiums (better to pay a higher deductible in exchange for a lower premium than be saddled with a $200,000 bill for reconstruction).
A report released last year from the Treasury Department found that most non-renewables are related to the rising costs associated with climate change. Non-renewal rates were nearly 80% higher in areas facing the greatest risk from climate-related disasters, the report found. Climate change has also increased costs for insurance companies. Between 2018 and 2022, insurers spent more in areas with high climate risk, in some cases paying more in claims than they collected in premiums.
Hire a broker if necessary. Keep calling and trying to find suitable coverage.
Related: My elderly uncle’s nursing home forced him to change his will and sell his house. She was worth crores. Can they get away with it?
Previous columns by Quentin Fottrell:
‘I’m in a financial mess’: My income was cut in half. Should I sell my $600K home and ditch my 2.9% mortgage rate?
I found an out-of-state buyer for my grandmother’s classic car. He wants me to cash the check. Is this a financial scam?
‘I’m in California and plan to live here’: I’m 61, lost my job and living off my $425K IRA. I have $650K equity in my home. Do I sell?
My son’s credit-card company will write off $10K on a $25K loan. Should he admit or declare bankruptcy?
