Why is my home insurance so expensive? | S2 Episode 7 | No Dumb Questions

Home insurance can seem like another major expense when it comes to home insurance. But it’s an incredibly important safeguard that you shouldn’t skimp on. Join Sara and Julia as they discuss: 

• What shapes your home insurance costs 
• What factors are in your control and what aren’t
• How to actually get cheaper premiums

Enjoy! 

Compare quotes!

Follow Insurify on Instagram

Disclaimer: This podcast is produced by Insurify and is intended for educational purposes only. We are not licensed insurance agents, and we do not constitute personalized financial or legal advice. Personal situations vary, and you should always consult a licensed professional before making financial decisions.

Transcript

0:10

Welcome back to No Dump Questions, the Insure Fi podcast where we give you straight talk on coverage, cleans, and savings. And I'm Sarah. And I'm Julia. And today's topic, why is your home insurance so expensive? Yeah, just about every single homeowner has asked why is my home insurance so high? And how can I get cheaper home insurance? Yeah. And home insurance prices have been creeping up. Um and it's not always obvious why. And some of this is in your control, but a lot of it isn't. Yes, so let's get into it. Okay, so bottom line, home insurance cost is based on risk. Yes. Higher risk means higher premium. Yeah. So the main drivers are gonna be your location, the weather risks, rebuilt costs, required coverage levels, and also economic factors. Yes, that's what shapes your home insurance rates. And a lot of it is out of your control. Yes, but what's in your control does include any home improvements or additions that you choose to add, um, your credit history, insurance bundling or discounts you may qualify for, your claims history, and then any coverage changes you may make. Yeah, so true. But let's deep dive. Let's do it. Cool. Okay, so unfortunately, home insurance pricing isn't very simple. Uh, never is. So let's go deeper into what's actually driving your average home insurance costs. Awesome. Okay. So the the single biggest factor is of course where you live, right? Yeah, insurers look at your local weather risks, local crime rates, and distance to fire protection, like your fire hydrant or a fire station. Yes. Um, for example, um, if we're looking at home insurance costs in Texas, huge state varies greatly depending on where you live, right? Um, so the climate risk itself can vary across the state, whether it's storms like hurricanes or hail storms, thunderstorms, even wildfire tornadoes, et cetera, right? Um and if you live in Tornado Alley, insurers will take that risk into account, the probability or a possible likelihood, right, that a hurricane could or a tornado could damage your home, either. Um, but if you live in Galveston, for example, you're more at risk for hurricanes or flooding. Yeah. So that is more the risk that's more likely to influence your premiums. Yes. So even if two homes look similar and their build is basically the same, but they're in different parts of the state, the location could change everything when it comes to cost. Exactly. Yeah. So next is rebuilding cost, how much it costs to rebuild your home. Yes. Which, as we've talked about with home insurance and other things, right? The rebuild cost is really what you want to know in order to get the right amount of coverage. Yes. So what goes into that would be the cost of labor, the cost of materials and construction, right, to rebuild or replace parts of your home. And if the cost to rebuild gets more expensive, claim costs increase, which can increase your premiums. For sure. And this also kind of leads into if you have replacement cost coverage, your actual cash value coverage, which is abbreviated as ACV. So replacement cost doesn't account for depreciation. So you rebuild your home to the same condition it was in based on current prices, not improvements, right? Um, and replacement cost coverage is much more expensive. Well, actual cash value does account for depreciation. So it's like normal wear and tear and age. Um, it's cheaper than replacement costs, but you may get lower claim payouts. Yes, that's true. And leading into other coverages, the more coverage that you have, that means it's going to be a higher premium. Right, of course. Um, because basically your insurer would be on the hook to pay out for more. So that could include higher limits for your dwelling coverage, um, more personal property coverage if you have just higher limits or maybe high val higher value items or higher liability protection. Yeah. And cutting coverage lowers cost, but it really increases risk and is super not recommended. Um, you need to carry at least what your mortgage lender requires you to have and then follow the 80-20 rule as a basic standard. Yes. Yeah. Whenever you're cutting, it's definitely something to be done thoughtfully. Very thoughtfully. Yeah. Um and speaking of other things that can affect that bottom line, your deductible will affect your home insurance rate as well. Yeah. And very similar to car insurance, a higher deductible means a lower monthly cost, but a lower deductible means a higher monthly cost. Yes. So it is a trade-off, right? Um basically with a higher deductible, you pay more out of pocket when you file a claim in exchange for lower premiums. But that's something to think about what suits your budget, your cash flow, et cetera, will inform that decision. Yes. And speaking of which, your claims history does matter. True. So more claims means more higher risk and higher premiums. Um, obviously, if there's a disaster in your area and you have to make a claim, make that claim. That is what home insurance is there for. Yeah, absolutely. And sometimes claims are unavoidable. Yeah. Um, but it's worth making home improvements to prevent claims and prevent small things from happening, or even just um lessen the damage, right? Even if you don't avoid a claim altogether, maybe it's not as bad as it might have been. Yes. Right. The details about your home can inform how much the damage might cost to repair. For example, um, the age of your home, whether there are any, you know, special fixtures or different materials used to build your home, um, and the roof condition of the home can really matter in how much that claim could cost. Yes. And older homes definitely have more risk in these areas. So it's worth updating features to current building standards to get lower rates. Um, but it's really dependent on your situation and your insurer, of course. Uh, like a good example of this is like if you live in an older home and the wiring needs to be updated, not only is that probably going to be good for fire prevention, sure, um, but it could help you get a better evaluation on your home. And there are lots of home improvements that you can do to either mitigate disaster or reduce the damage if it happens. Um, pools, for example, are definitely a more at-risk thing. I mean, that there they are out there in the yard. Yes. Right. Um, they're considered, I believe, an attractive nuisance because there's also liability that comes into play there. If you have, you know, other people over, pool party, you know, that it's it can be a risky thing on a property, right? Um, so that's one thing that if you have a pool and you have really high rates, if it's important to you to keep it, rock on. Yeah. Um, but that's something to consider when you're thinking about what kind of property works for you. Um, roof is another big place to look. I mean, so at risk from hail storms, bad hail storms, hurricanes, tornadoes, and an updated roof with more secure materials or specific kinds of like impact-resistant shingling is less likely to be damaged or damaged as bad, which will reduce the claimed cost basically and save you some money. And then there are other things like um storm shutters on windows, which can help with hurricane damage. Um and then there are things like inside your home that could increase costs. Like if you've got really beautiful, expensive granite countertops, for example, love that. But that could increase your rates because it's just more expensive to replace. Yes, higher replacement costs. Yeah. So in many states, credit history is another thing that can influence home insurance costs. So insurers use a credit-based insurance score. So many words in a row. Yeah. Um, to set rates in most states. Um, this is something we've talked about a little bit with car insurance and I believe with home insurance. But basically, a credit-based insurance score isn't just your credit score, it involves your credit score, your credit history, but also includes like loans and repayment status and debt and things like that. So it's it's more of a um a broad view of your kind of like financial well-being. Yes. And that is one of the factors that insures use asset rates because it can be an indicator of the likelihood people will file a claim. Yeah. So lower score can indicate higher perceived risk to insurers. Yes. Um, so it correlates to claim risk and your ability to pay premiums on time, and that's why they consider it. Yeah, exactly. Um, and even if nothing changed for you, this is so important. Even if nothing changed for you, you might still see prices go up. Yeah. And this is all these factors that are like out of your control. Yeah. So that's rising construction costs, more severe weather in your area, and just more claims overall in your area. Yeah. We cannot underestimate the effect of just inflation on things like this. Cause like you said, anything that increases the cost of rebuild and construction, that can affect the bottom line here. Yes. So your average home insurance cost might increase year to year, even if nothing has changed, like specifically for you individually. Um, an example of this, um, the devastating Palisades wildfires that just happened. Um, you know, that was a a hugely, hugely damaging severe weather event. It had a ton of claims as a result and very expensive claims because of where it happened. And many, many homes needed to be completely rebuilt, um, which will increase costs in that area because of that increased risk and just the increased claims costs. Yes. So overall, all homes will likely see an increase in their premium, even if they didn't themselves get damaged by the wildfires because of the increased financial and weather risk in that area. Exactly. Yeah. So overall, if your premium increased, it's probably due to a market change, a risk change, or a coverage change. Or a mix. Or a mix. Right. Yeah. And I know this can be really frustrating, but we're gonna talk about a few ways that you can reduce your costs. Yes. So here are a few ways that you can lower your rates and find cheaper home insurance. Yes. The easiest way is to just compare three to five quotes. Um, it costs nothing, right, to do it. And you just never know if there's a cheaper rate out there for the coverage that you need unless you look, unless you compare. Exactly. And while you're comparing quotes, compare your discounts. Are you bundling your home and auto? Are you taking advantage of any home improvement discounts? Are you comparing discounts when you're comparing quotes? So it's worth asking your insurer what you qualify for because not every discount is printed on the website. Even something as small as having updated smoke detectors can get you a discount. That's true. Yeah, it's true. And then there are home improvements. And these can come with a cost up front, but there are other things like, you know, if you live in a wildfire prone area, just like trimming the brush around your home can reduce. So there's there's things like that, which are lower cost, and then there are replacing the roof, which can get very expensive. But basically, if you live in a high-risk area, think about what safety measures you can take. Um, what state assistance programs are there? Because several states have grant programs for homeowners who want to update their roofs for just that reason. Um, and what discounts could you maybe get if you do some of those home improvements? Yeah. Um, those are all really good things to consider. They some of them might come with that cost initially, but it could save you a bundle in the long run. For sure. And then, of course, like we just talked about credit, credit history, financial health. Um, as you're able, try to keep it strong, maintain a good credit. Um, we know this can be a challenge. This isn't just like a quick fix, but it's a great goal for yourself and it can also have the added benefit of lowering your insurance rates. And just like with car insurance, you want to consider your deductible. Obviously, a higher deductible means cheaper premiums. Um, lower deductible means more expensive premiums. But overall, a higher deductible is gonna be higher risk because if there's a disaster, you're gonna have to pay more out of pocket. So make sure that you can actually afford that. Yeah, really, really good point. I think we should jump to some frequently asked questions. Let's do it. Amazing. Okay, Julia. Once again, you're on the spot. Oh, all right. It's okay. This is my life now. I'm ready. Okay. What factors affect your home insurance rates? Okay. Uh, location, definitely. Um, rebuild cost, definitely gonna influence claim cost. Um, coverage levels, just how much coverage you're paying for, and your claims history can also influence your rates. Yes. Okay. How much does home insurance cost in Texas? Oh, we got some questions from Texans. Texans. It's a big shout out, shout out Texas. Um, according to Insurify data, the average cost of homeowners insurance in Texas is $4,116 a year for $300,000 of dwelling coverage with a $1,000 deductible. I specify that because that is the average. And if you have different coverage level needs, different deductible, live in a different specific area of the state, you might see different cost. But that's the average cost. For sure. Okay. What can I do to lower my home insurance costs? Yes. Okay. Depending on your circumstances, you could raise your deductible, right? If you're okay with that higher out of pocket cost, you can adjust your coverage levels, maybe a little bit lower on liability, or if your replacement costs dropped, you could drop your coverage levels. And the by far easiest one with the least consequences is just compare quotes. You mean super easy, super quick. Um, if you already have the best deal, great, no need to change. If you find a new one, even better. Yeah, for sure. So, what kind of discounts can you get on homeowners insurance? Oof. All right, let's get to them all. Um, we have got um bundling or multiple policies. So if you have a car and a home, you can bundle those policies and often unlock a pretty significant discount. Um, if you have a security system, you can get a discount for that. Fire alarm or smoke detector, like you mentioned, um, customer loyalty. Sometimes it can pay to stay with your home insurer. Always worth it to compare. Yes. But sometimes that can be mean you you get a better deal, basically. Um if you're claims free, that can earn you a discount. Um, if you're a new home buyer, that can often earn you a discount as well, which is so great. I love to hear that. Um, if you're a senior citizen or you've been a homeowner for a while, that can also earn you a discount. And then really simple, quick things like payment method. Yeah. Like setting up auto pay or paperless billing or things like that. The discounts are small, but they add up. They really do, especially when you're paying thousands of dollars a year. Exactly. Yeah. Okay. And finally, a big question. What do I do if I can't get standard home insurance from a traditional insurer? Ooh, yeah, that is really tough. And this is something that more and more homeowners are facing. Um, and it's really scary, right? Like you have a home somewhere and then you you can't find home insurance, what are you gonna do? Yeah. Um, so one thing to look into is your state's FAIR plan. Um, FAIR stands is an acronym that stands for FAIR access to insurance requirements. And the reason why it's called that is because often, you know, if you have a mortgage, you're gonna need to have home insurance. Usually your mortgage requires it. So if you have a home and a mortgage and you're unable to find home insurance on the standard market, this is a state program that will help get you the coverage that you need to meet that requirement from your lender, right? Um, it doesn't mean that it is the same cost. It often, because it is usually applying to higher risk homes, it can be more expensive than traditional insurance, but it can step in to provide coverage until a traditional insurer agrees to cover you or there's more policy availability in your area. Yes. And I would also add the caveat that fare plans typically don't include liability. That's true. That will be something you'll have to get from somewhere else. Yes. Yeah. But in important resources in the states that use it. Yeah, got you. All right. Fabulous job. Thank you. Let's get into our action plan. Sound good. All right. Home insurance can be a really big expense. Yeah. Um, so let's talk a little bit about what you should do if your home insurance is too expensive. So, first off, you're gonna review your home insurance estimate. You're gonna look at what coverages you have and what your deductible is. Next, you're gonna identify what's driving your costs. Um, is it where you live? Is it the risk in that area, risk that you might have in your home, um, or is it your claims history? And then you're gonna wanna adjust what you can. So obviously, deductibles is the most intuitive option. And then maybe coverage levels, but remember you have to stick within what your mortgage lender requires, that 80-20 rule, um, because lower coverage limits can mean big payments down the road. So you gotta kind of weigh the pros and cons on that one. Yeah, for sure. And then last and super easy, compare quotes, right? You know, we always say this prices vary. Um, insurers evaluate risk differently. So it's not even if you're even if you're looking for quotes at the exact same coverage levels that you already have, it's still worth it to check. For sure because you will likely get different prices from different insurers. Yes, yeah. All right, let's wrap this up. Amazing, let's do it. All right. Overall, home insurance is expensive because essentially risk is expensive. Yeah, and your price reflects that risk. And many factors are out of your control. Yep, some you just can't control. Yeah. But understanding your home insurance costs gives you more control over the situation. Yeah, it does. So don't just accept the price as it is what it is. Yes. See if there's any hidden savings that you can find there. Yeah, for sure. Thanks so much for listening and tuning in to No Dumb Questions. Compare quotes using the link below and don't overpay for coverage. Until next time, stay informed and save money. You're listening to No Dumb Questions, an Insurify podcast. This content does not constitute personalized financial or legal advice. This podcast is written, produced, recorded, and developed by Sarah Getman, Julia Taliessen, Riley Hines, Sidney Harrell, and edited by Angelica Coleman. Compare insurance quotes by clicking the link below.