From a natural disaster standpoint, the past few years have been off the charts, including:
- Wildfires caused extensive damage in Los Angeles and on the island of Maui
- Hurricane Ian destroyed a large swath of Florida
- Hurricane Helene left a trail of destruction through North Carolina
- Multiple tornado outbreaks hit the central and Midwest regions of the country
Even now, flooding is devastating parts of the Midwest and South.
In 2024 alone, the United States suffered 27 natural disasters that each caused more than $1 billion in damage.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That’s devastating to the people in the disasters’ paths — and their finances. Not only do they face the obvious expenses associated with disaster recovery, they’re also discovering that bills for homeowners insurance can be a long-term — even permanent — hit to the wallet.
Soaring insurance premiums and fewer providers
One of the largest insurers in the country, State Farm, reported it lost $4.7 billion on its homeowners insurance business, which was a significant chunk of the $23 billion in losses the industry as a whole reports over the last five years.
Such reported losses are causing sharp increases in insurance premiums nationwide, even in states we don’t ordinarily associate with major natural disasters, such as Colorado and Minnesota.
My own clients have complained about their insurance premiums skyrocketing even though, here in Silicon Valley, we are far away from the wildfires that caused so much destruction in Los Angeles.
Even worse, for those in states that are common sites of headline-generating disasters like hurricanes, earthquakes and wildfires, some companies are withdrawing from the homeowners insurance market entirely.
That leaves people in states such as Florida and California scrambling to find coverage and increasingly failing to do so.
It also leaves a system known as “insurers of last resort” — state-run insurance programs designed for people who can’t get private coverage — as their only option. The trouble is, such last-resort options are generally much more expensive than private insurance.
Many who can’t find or afford coverage are forced to take the risk of going without if they can. If they still have a mortgage, that’s generally not an option because the terms of the loan require the home to be insured.
Should a homeowner not obtain coverage of their own, the bank will exercise an option called “force-placed” mortgage insurance and bill the homeowner for the premiums.
That’s a risky option: Under a force-placed policy, the homeowner is not the insured; the bank is. This means that, should a disaster destroy the home, the bank will be made whole, while the homeowner will receive no compensation.
How to cut the cost of homeowners insurance
When premiums are on the rise, it’s important to assess your coverages: Don’t just ask, “Do I have enough?” but rather, “Do I have too much?”
It will not be a surprise that insurance agents who receive commissions for selling insurance products will often be more than happy to sell you coverages you don’t actually need, while it’s also possible to have coverages you needed when you signed up, but no longer do.
For example, if you sell a boat that is insured and fail to inform the insurance company that you no longer own it, you will keep paying to insure it unnecessarily. The same applies to other possessions which may be separately insured with riders, such as jewelry and art.
Once you’ve cut out unnecessary policies, if your premiums are still too high, consider increasing your deductible. If your deductible is currently $500, upping that to $5,000 will likely save you money on your premiums. However, make sure you increase the amount in your emergency fund so you can cover the higher deductible should it be necessary.
Insurance has always been complicated, but perhaps never more so than in the age of almost-routine billion-dollar natural disasters.
It’s important to work with your financial adviser to get a second opinion on whether your insurance coverages are appropriately sized for your unique circumstances.
Related Content
- State Farm Seeks Emergency Insurance Rate Hikes in California After Wildfires
- Hurricane Insurance Claims: 10 Things You Need to Know
- How to Find Insurance Coverage in Disaster-Prone Areas
- How to Take a Break Without Breaking the Bank
- Interest Rate Cuts and Inflation: What's Really Going On?
-
Don’t Miss Apple and Walmart Back-to-School Tax-Free Holiday Savings this SummerSales Tax Select states host sales tax holidays during the summer. Here’s what you can purchase.
-
The Rule of Retirement InversionThe rule of retirement inversion says that to have a great retirement, you must ask yourself what would ruin a great retirement — and then plan to avoid it.
-
The Five Best Side Hustles for RetireesMore older people are working in retirement to boost income and stave off boredom. These gigs and hustles make the most sense for the golden years crowd.
-
TSA’s New Family Lanes Aim to Take the Stress Out of Summer TravelThe “Families on the Fly” campaign introduces family-friendly security lanes and discounted TSA PreCheck fees — just in time for peak travel season.
-
How Divorced Retirees Can Maximize Their Social Security Benefits: A Case StudySusan discovered several years after she filed for Social Security that she is eligible to receive benefits based on her ex-spouse's earnings record. This case study explains how her new benefits are calculated and what her steps are to claim some of the money she missed.
-
From Piggy Banks to Portfolios: A Financial Planner's Guide to Talking to Your Kids About Money at Every AgeFrom toddlers to young adults, all kids can benefit from open conversations with their parents about spending and saving. Here's what to talk about — and when.
-
I'm an Investment Pro: Here's How Alternatives Could Inject Stability and Growth Into Your PortfolioAlternative investments can often avoid the impact of volatility, counterbalancing the ups and downs of stocks and bonds during times of market stress.
-
Retirement in the Age of Cyber Scams: How To Protect Your Next ChapterRetirement is meant to be a time of relaxation and living life on your terms. But for many retirees, this dream is under threat from a growing epidemic — cyber scams.
-
Dow Bleeds Red Due to Big Blue: Stock Market TodaySix of the official GICS sectors were in the green, led by communications services, technology and energy stocks.
-
July Fed Meeting: Live Updates and CommentaryThe July Fed meeting could be a lively economic event, with Wall Street keyed into what Fed Chair Powell has to say about interest rates and President Trump.
