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How to maintain coverage if you’re struggling with rising home and auto insurance costs

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How to maintain coverage if you’re struggling with rising home and auto insurance costs

 

“As long as global warming continues, I don’t see how this is going to stop.” Risk pools are leaking, and insurance companies are raising premiums and kicking people out.

This article is reprinted with permission from NerdWallet.

“It’s pure panic,” Teddy Mars of Louisiana felt when his homeowner’s insurance company didn’t renew his policy in early 2023. That last option left him and his family paying more for homeowners insurance than for their mortgage.

To cover the costs, Mars had to dip into her nest egg and withdraw $12,000 from her personal retirement account. “We don’t have a huge pile of cash sitting here,” Maas said. And if you have a mortgage, opting out of insurance is not an option.

“It’s going to break my heart, but I think I have to leave,” said Mars, who grew up in Louisiana. But he has a son in high school, so it’s not easy for him to pack up and leave the city. Additionally, Mars is worried about whether his home will sell. “Why would anyone want to buy a home in our area if they can’t insure it?”

The story of Mars is becoming all too familiar to Americans as climate change hits the nation more frequently and with more force. Combined with inflation and an increase in car accidents and theft, many people are at risk of losing access to home and car insurance.

Related: First-ever report from Treasury detailing the costly burden of climate change on U.S. households

Homeowners are stuck between a rock and a hard place

According to a recent survey from NerdWallet, nearly three in five people with homeowners insurance say their premiums have increased in the past 12 months. And about 1 in 10 people are worried that their insurance company will stop doing business in their state.

That’s a legitimate concern. In Florida, for example, there is such a shortage of private homeowners insurance that Citizens, the state-funded “insurer of last resort,” is now the top real estate insurer by volume.

Many homeowners even go without insurance at all. According to a 2023 study from the Insurance Information Institute, 12% of homeowners do not have homeowners insurance. Of these homeowners, about half have annual household incomes of less than $40,000.

“This is a disaster,” said Dori Einhorn, owner of California-based Einhorn Insurance, which specializes in wildfire insurance. “I’ve never seen anything this bad,” Einhorn said, noting that a growing number of insurance companies are no longer writing policies in the Golden State. “As long as global warming continues, I don’t see how this is going to stop.”

Car insurance premiums are rising

It’s not just homeowners insurance that is more difficult under lockdown. Auto insurance companies are raising premiums while scrutinizing the cars they insure. Just ask Florida resident Gail Harlan.

After Harlan signed the papers to lease a 2023 Kia Seltos, he received new policy documents from his insurance company. “I was really shocked,” Harlan recalls how he felt when he found out he was paying much more for his new insurance than he had for his old car.

Harlan had a pay-per-mile auto insurance program on his last car, a 2022 Honda (HMC) CR-V. We were able to keep her rates low because she didn’t have that many miles on her. With her new Kia (KR:000270) Seltos, Ms. Harlan was unable to participate in the same program, so she had to take out regular fixed amount insurance. So she went shopping.

Harlan received quotes from multiple insurance companies that were much higher than what he was previously paying. The highest quote she received was more than $2,200 for six months of insurance. One major insurance company even refused to give her a quote, citing a recent spate of thefts of Kia and Hyundai cars. This response came despite Harlan presenting an email from Kia explaining that the 2023 Kia Seltos is not at risk of similar theft. “I thought this would be easy,” Harlan says.

And Harlan is not alone. According to a survey by NerdWallet Insurance, more than one in six auto insurance owners say their premiums have increased significantly in the past 12 months. Auto insurance costs rose 19% in August from a year earlier, according to the latest data from the U.S. Bureau of Labor Statistics. Meanwhile, more Americans are not buying car insurance.

See: As auto insurance premiums rise, this driver reduced his bill by 37% — here’s how

America’s risk pool is being drained

When you buy insurance, your premiums are pooled with other people’s premiums. Insurance companies withdraw funds from this pool to pay claims to the unfortunate few. The problem is that for many companies, this pool is drying up and they are being forced to replenish it by raising prices or forcing employees out.

Causes of leaks include:

More expensive claims. A rise in extreme weather and traffic fatalities across much of the United States is forcing insurance companies to dig deep into their pockets to cover claims. Inflation, supply chain bottlenecks and labor shortages are adding fuel to the fire, driving up the cost of reinsurance. Reinsurance (insurance for insurance companies) is becoming increasingly difficult to obtain, putting pressure on home and auto insurers to move away from high-risk markets. Friction between insurance companies and states. Home and auto insurance are regulated at the state level, so insurance companies are subject to state law regulations. For example, in Florida, insurance companies face huge losses due to a disproportionately high number of lawsuits. And many insurance companies cite state-imposed limits on rate hikes as a reason to leave California.

There are glimmers of hope that insurers can stem the leaks, including recent U.S. Senate hearings on the property and casualty insurance market, signs of slowing inflation, and insurance reform in Florida.

But that probably won’t be much comfort to many Americans just trying to make ends meet. According to LendingClub’s 2023 Survey of Women, 3 in 5 Americans live paycheck to paycheck.

what can you do about it

If you’re having trouble paying your premiums or are worried that your insurance company will drop your coverage at renewal, try these six methods.

1. Go shopping

Home and auto insurance premiums vary widely depending on the company. If you think you’re paying too much, shop around. Gather quotes from at least three different companies to ensure you get the best deal possible. This approach worked well for Harlan, who ultimately found a price for car insurance that he was happy with.

2. Ask for help

If your insurance options are limited, it may be time to enlist the help of an independent insurance agent. Local agents are familiar with your area and its businesses and are developing policies. “You need to find people who know what they’re doing,” Einhorn warns. “Find an agent who is responsive and not just about getting a commission.”

3. Adjust scope

If you can take on more risk yourself, you can lower your premiums. For example, you may be able to increase your deductible or remove optional coverage you no longer need. Just don’t reduce your coverage to the point where you’ll be financially ruined in the event of a major disaster.

4. Get ahead of problems

Insurance companies regularly inspect the homes they insure (or plan to insure). This is especially true for older homes located in high-risk areas. Don’t give the other person a reason to refuse or decline your insurance coverage. Protect your home by removing nearby brush and overgrown trees, and make sure your roof, electrical, plumbing, and air conditioning systems are in good condition.

5. Research before you buy

If you’re thinking of buying a new home or car, check your insurance quote before signing on the dotted line. That way, you won’t be caught off guard by expensive insurance that you can’t afford. You can also assess your property’s risk to climate change by entering your address on riskfactor.com.

6. Don’t let your insurance lapse

It may be tempting to skip paying high premiums, but letting your insurance lapse can make things worse. Not only will you be solely responsible for any damage to your home or car, but your insurance company may decide it is unsafe to insure you in the future. Therefore, even if you have a valid reason for the lapse, your premiums may be higher if you decide to take out insurance again. It goes without saying that if you have a car or mortgage, you need insurance.

Details about NerdWallet

What to do if you can’t afford homeowners insurance Why are auto insurance premiums going up? How one driver cut his auto insurance premiums by almost 40%

Ryan Brady writes for NerdWallet. Email: rbrady@nerdwallet.com. Twitter: @reallyryanbrady.

-Ryan Brady

This content was generated by MarketWatch, a Dow Jones Company. MarketWatch is published independently of the Dow Jones Newswires and the Wall Street Journal.

 

(Ended) Dow Jones News

10-02-23 0502ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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