The cost of homeowner’s insurance is going through the roof. Premiums have soared in recent years, but it’s not the same type of inflation that affects the cost of your cup of coffee or a new appliance for the kitchen.

The cost of an average policy has jumped by about 15 percent nationwide over the past year, which is triple the usual rate of increase. The increase does not impact everyone in the same way. It often depends on where you live, climate change, and other factors.

As a result, insurance for millions of homeowners has become a significant monthly expense rather than a mere financial safety net.

According to the National Association of Insurance Commissioners, the average premium for a homeowner’s policy now stands at more than $2,500 a year, and in some areas, it can be several thousand dollars.

Blame Climate Change for Rising Homeowner’s Insurance

The steep increase is partly driven by the sharp rise in severe events such as wildfires, hurricanes, tornados, and floods – all exacerbated by climate change.

These extreme events have led to increased claims, which has prompted insurance companies to adjust their pricing models.

Residents in Florida, California, and a few other states have felt the sharpest increases in policy premiums. There are plenty of horror stories about rates doubling, tripling, or in some cases, being dropped altogether because it’s just too risky for insurers. An industry group, the Insurance Information Institute, says insurers paid out $1.10 in claims last year for every $1 of premiums collected.

Nationally, 28 different events last year led to losses of more than $1 billion, three times more than in 1980, even after adjusting for inflation.

When claims go up, insurers raise rates. In some disaster-prone areas such as Houston, some insurers are no longer writing policies, leaving homeowners vulnerable. Both State Farm and Allstate have pulled out of the market in California, while Farmers Group stopped writing new policies in Florida.

And while many susceptible areas are facing huge increases right now, experts warn that the rest of us may not be far behind.

Other Factors Impacting Homeowner’s Insurance

It’s not just disasters that are driving up the cost of homeowner’s insurance.

The sharp rise in home values makes it far more expensive to replace a home that has been devastated by a fire or storm.

The rising cost of building materials and labor is another key element.

Is There Anything You Can Do?

Unfortunately, there is little relief in sight for homeowners, but there are a few ways to limit the increased costs. However, many come with increased risk.

You can opt for a higher deductible, which could lower your monthly premium. But be cautious: if you face a major claim, you must cover that higher deductible amount out-of-pocket.

While the standard home insurance deductible typically ranges from $500 to $1,000, the number of policies with deductibles of $2,000 or more is growing rapidly. But remember: if you incur damages of $2,000, you end up paying the entire bill. Only if the damage tops $2,000 does the policy kick in.

One recent analysis showed that doubling your deductible to $1,000 from $500 would save about 6 percent on average.

You can also reduce your coverage, but that’s even more risky than raising your deductible.

Other ideas to lower the cost of your homeowner’s insurance include:

• Bundle your policies. Some companies offer discounts if you also use their auto insurance.
• Enhance home security. Installing security systems, smoke detectors, and other safety features can provide some relief.
• Seek out discounts. Some insurers provide significant discounts for ítems like new roofs, storm-resistant windows, or landscaping improvements. Discounts are also available for affiliations with alumni or professional groups.
• Shop around. People tend to stick with the same company year after year. You might be surprised by the price differential between insurance companies. Be sure to compare policies with the same coverage and deductibles. Otherwise, you’re comparing apples to oranges.

The Risk May Not Be Worth the Savings

Some people are choosing to take even more drastic measures and drop their coverage altogether, what’s known as “going bare.” In effect, they are choosing to “self-insure,” which can be extremely risky.

For many people, their home is their most valuable asset, so one major event could wipe out a big chunk of their wealth.

It’s also worth noting that filing a claim can lead to higher premiums when you go to renew.  If you have a $500 deductible and file a claim for $800, it may not be worth it in the long run.

Also, poor credit histories can lead to significantly higher premiums. And where you live matters. Local neighborhoods with high vandalism and break-in rates are often subject to higher costs. They are considered high-risk.

Insurance companies may consider things like swimming pools, hot tubs, tree houses, trampolines, and even pets to be “attractive nuisances.” Basically, they attract children and create a hazard that can lead to higher premiums.

The bottom line is the cost of home insurance is going up, and you may have to find ways to fit it into your budget. There are some ways to limit those increases but be careful not to incur lots of potentially expensive risk down the road, just to save a few bucks now.

Are you wondering what’s right for you? Feel free to call your EKS Associates advisor if you have questions. We’re always here to help you evaluate your choices so you remain financially independent.