As summer gets underway, the National Weather Service is predicting an above-average season of hurricane activity, with severe storms already developing. To add insult to injury, homeowners have been feeling the sting of rising insurance costs. Here are some things you should consider when it comes to protecting one of your most valuable assets – your home.
What’s with the price increases?
First, let’s look at why the rise in costs has been so drastic over recent years. As most would guess, general inflation is largely to blame. The price of lumber and other building materials, as well as labor, have been on the rise in recent years. This means homes are more expensive to rebuild – and to insure. The other key driver is the large number of losses insurance companies have had to cover in the recent past. In 2023 alone, there were 28 storms nationwide that caused over $1 billion in damage – and this was in a year with relatively little hurricane activity. [1]
What’s a homeowner to do?
A total home loss, or even significant damage caused by a hurricane, can be devastating. Here are some things to consider in making sure you are properly protecting yourself.
- Coverage Amount
Homeowner’s insurance is broken into several parts, including “Coverage A – Dwelling”, which is the amount of coverage on the main structure of your home. If you’ve been in the same home and insured with the same carrier for several years, you may want to review your policy to ensure (no pun intended) that your coverage amount is still appropriate and accounts for inflation in building costs and the rise in home values.
- Coverage Type
Most home policies offer “Replacement Cost”, which means they cover the amount required to replace your home with a similar one at today’s market prices. However, it’s a good idea to be cautious of policies that are based on “Actual Cash Value”, which only covers the depreciated cost of your property, and will most often pay less in the event of a loss. In high-risk areas where insurance is more expensive or harder to secure, this may be a more prevalent practice, as it is one of the few ways to reduce overall cost.
- Deductibles
An important distinction for Louisiana residents is that insurance policies consist of two separate deductibles: “Named Storm, Hurricane, and Wind/Hail” and “All Other Perils”.
Because of the exorbitant risk of storm damage, the former is usually stated as a percentage of the insured Dwelling amount (Coverage A). For example, a $500,000 home might have a 2% ($10,000) wind and hail deductible that would also apply for named storms or hurricanes, and only a $2,000 deductible for other losses such as fire or theft.
Understanding how these deductibles work can help you to be financially prepared for a potential claim. A common rule of thumb is to make sure you have an emergency fund sufficient to cover at least your highest deductible, plus 2-3 months of living expenses, in the event of a major catastrophe.
Homeowners are feeling the squeeze of rising insurance, and there are few options out there for lowering your premiums while maintaining proper coverage. While it might be tempting to race toward the lowest premium costs, make sure to also consider your insurance company’s financial strength, as this is critical for honoring claims. Remember, you might have a contractual agreement, but this is only effective as long as the insurance company is financially solvent.
Instead of focusing too much on the cost, most homeowners would be well served to review their coverage and make sure they are properly prepared for if and when they will need to rely on their insurance to make them whole.
If we can be of help in conducting this review, please let us know.
[1]https://www.ncei.noaa.gov/access/billions/events/US/1980-2023?disasters[]=all-disasters