“My deductible is $5,000.” (The subject of the photo is a model.) – Getty Images/iStockphoto
This is a short question, but an important one: Is it terribly reckless to cancel your homeowner’s insurance? I’m not sure I can justify another $4,000 a year. (I don’t have a mortgage.) My deductible is $5,000.
Homeowner
Related:
Your home insurance is almost double the average cost of home insurance incurred by the average homeowner. – MarketWatch illustration
Canceling your homeowner’s insurance isn’t necessarily reckless, but it’s financially risky if you don’t have a very large emergency fund — and an appetite for risk. Forgoing insurance could be a regrettable decision if your savings are far less than the cost of repair or reconstruction, you cannot afford to cover a large claim without serious financial hardship, and/or you want peace of mind rather than exposure to worst-case losses.
A standard homeowner’s policy covers many—but not all—major risks and excludes things like flood and earthquake unless you buy separate coverage. But you also buy peace of mind knowing that if the roof blows off your house during a storm, or — God forbid — there’s a fire due to faulty electrical wiring or an adapter that can’t handle the voltage, you won’t be facing thousands or possibly hundreds of thousands of dollars in expenses you can’t afford. In other words, you won’t be homeless.
About one in seven owner-occupied homes in the US is uninsured. That’s according to this LendingTree study from last year. It’s partly because some homeowners, like yourself, say they can’t afford their premiums, and partly because of climate change and the inability of some people to insure their homes even for extreme weather. So you’re not alone in facing this choice: you’re struggling to pay rising premiums, or you’re uninsured – and risking catastrophic financial costs.
“This has been particularly evident in states such as Florida, California and Louisiana, where insurers have withdrawn or dramatically increased premiums in response to growing climate threats,” the report said.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 even tripled in just 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, it’s almost double the average cost of home insurance borne by the average homeowner. The average American pays nearly $2,500 a year for home insurance, according to a survey by personal finance website Bankrate. This has increased by almost 10% in the last three years. (This doesn’t include property taxes, which can range from $1,500 a year to more than $7,000, depending on where you live and the size of your property.)
Without a mortgage—congratulations, by the way—you have no lender obligation to carry insurance, so you remain personally responsible for all losses associated with your home. This not only includes damage to your home, but also liability claims if someone (including house guests) is injured on your property. Owning your home does not eliminate these risks. Not being insured only makes sense if you have enough liquid assets to cover a worst-case scenario. These could be thousands or, in the case of liability insurance, even millions.
Homeowner’s insurance can be negotiated, both to lower premiums before a claim and to improve settlements after a loss. Ask potential insurers about discounts for security systems, smoke detectors, energy rating, smart-home technology, paperless billing – or even if you don’t smoke. Combining home and auto policies with the same provider can result in savings of up to 20% in some cases. Increasing your deductible can also lower your premiums (better to pay a higher deductible for a lower premium than be saddled with a $200,000 rebuild bill).
A report released last year from the Treasury Department found that most non-renewals are related to the increased costs associated with climate change. Non-renewal rates were about 80 percent higher in areas facing the highest risks of climate-related disasters, the report found. Climate change also increases costs for insurance companies. Between 2018 and 2022, insurers spent more in the areas with the greatest climate risks, in some cases paying out more in claims than they collected in premiums.
Hire a broker if necessary. Keep calling and trying to find suitable coverage.
Related: My elderly cousin’s nursing home forced her to change her will—and sell her house. She was worth millions. Can I get away with this?
Previous columns by Quentin Fottrell:
“I’m in a financial mess”: My income has been cut in half. Do I sell my $600,000 home and say goodbye to my 2.9% mortgage rate?
I found an out-of-state buyer for my grandmother’s classic car. He wants me to cash a check. Is this a financial scam?
“I’m in California and plan to stay here”: I’m 61, lost my job, and live off my $425,000 IRA. My home has $650,000 in equity. sell?
My son’s credit card company will write off $10,000 of a $25,000 debt. Should he accept or declare bankruptcy?
