Why Are Homeowners Insurance Rates Going Up?

Why Are Homeowners Insurance Rates Going Up?

Homeowners insurance rates have been climbing nationwide, but it's not due to any single cause. Rather, insurers are hiking premiums due to a mix of economic, environmental and property-specific factors to keep pace with rising claim costs.

Here are some of the reasons why coverage is getting more expensive.

More Frequent and Severe Weather Events

Climate-related disasters like hurricanes, wildfires, hailstorms and floods are occurring more often and with greater intensity.

These events can cause extensive property damage, leading to more frequent and costly insurance claims. As insurers pay out more in claims, they often raise premiums to offset the growing financial risk.

Rising Construction and Labor Costs

Rebuilding after a loss is far more expensive than it was even a few years ago. Material prices—especially lumber, roofing and copper—have surged due to supply chain disruptions and high demand.

Skilled labor shortages have further driven up wages, further increasing the cost of repairs and replacement.

Inflation and Litigation Trends

General inflation increases the price of goods and services, including construction supplies and temporary housing for displaced homeowners.

At the same time, litigation trends have led to more lawsuits and higher settlement amounts. These combined pressures mean insurers must charge more to maintain profitability and cover higher operating expenses.

Bigger Homes

Larger, high-end homes require more expensive materials, specialized labor and often custom-built components for repairs.

These properties are also more likely to feature luxury finishes and advanced systems that cost more to replace. As a result, premiums for upscale homes tend to be significantly higher than for smaller, modestly finished properties.

What Other Factors Impact Homeowners Insurance Rates?

While rising market-wide costs affect nearly everyone, your personal homeowners insurance rate is also shaped by factors unique to your home, your location and your history as a policyholder.

Understanding these factors can help you identify ways to reduce your premium:

• Where you live: Location plays a major role in determining your premium. Areas prone to severe weather, wildfires, flooding or high crime often face higher rates because the risk of loss is greater. Living close to a fire hydrant or fire department can help you save.
• Your coverage levels: Insurers base your coverage amount on the estimated cost to rebuild your home and replace your belongings. If construction costs in your area are high, your premiums will reflect that.
• Your home's age and condition: Newer homes often qualify for discounts because they're built to modern safety codes and require fewer repairs. Additionally, the condition of your roof, siding and other structural elements can result in lower or higher rates.
• Your claims history: Filing multiple claims within a few years can cause insurers to label you as a higher-risk customer. Even small claims can influence your rates, so it's worth considering whether paying out of pocket for minor damage is the smarter move.
• Your deductible: The deductible is what you pay before your insurer covers the rest of a claim. Choosing a higher deductible can significantly reduce your monthly premium, but it also means you'll pay more out of pocket if you need to file a claim.
• Your credit score: In most states, homeowners insurance companies are allowed to use a credit-based insurance score to help calculate your premiums. A higher score generally leads to lower premiums.

How to Save on Homeowners Insurance

Even though homeowners insurance rates are climbing nationwide, there are still effective ways to keep your costs in check. Here are some things you can try to lower your homeowners insurance premiums:

• Shop around and compare rates. Each insurance company uses its own formula to price risk, which means quotes can vary widely. Getting multiple quotes ensures you're not overpaying for similar coverage.
• Make home improvements. Upgrading roofs, wiring, plumbing or HVAC systems can make your home safer and qualify you for discounts. Insurers often reward updates that reduce the risk of costly claims.
• Bundle your policies. Combining your homeowners insurance with auto, motorcycle or other coverage from the same provider can lower your total premium. Bundling also simplifies your bills and policy management.
• Raise your deductible. Choosing a higher deductible can significantly lower your monthly premium. Just be sure you have enough in savings to cover that amount if you need to file a claim.
• Install safety features. Adding monitored security systems, smoke detectors, fire alarms or smart home devices can earn discounts.
• Improve your credit score. Get free access to your Experian credit report and FICO^® Score^Θ to get an idea of where you stand. Then, use these resources to start improving your credit.
• Ask about other discounts. Some insurers offer discounts for things like going paperless, paying your premium in full or being claim-free for several years.

The Bottom Line

Rising homeowners insurance costs can be daunting, but it's important to remember that adequate coverage can give you the protection you need in an emergency.

Still, it's a good idea to take your time to better understand the factors that influence what you pay for coverage and look for opportunities to lower your rates without putting your future financial security at risk.