Homeowners insurance — or not?

If you own your own home, it’s no surprise that your homeowners insurance premium has soared. Opening that bill, you might find a 25% increase or more — even though you’ve had no claims. If your premium is included in your monthly mortgage payment, you’ll get notice of a jump in your monthly payment.

Insurance companies have indeed been hit with more catastrophic losses in recent years. Some of it is related to climate change. Even though hurricane and earthquake coverage are not part of traditional homeowners insurance (and must be covered by separate policies), there are rising claims from wind and wind-driven water damage, as well as from hail.

Wildfires in California and tornadoes in the nation’s midsection have caused major losses. And the amount that insurers must shell out for construction costs to replace the insured property has soared with inflation. No wonder there are staggering premium increases. And no wonder that insurers are actually leaving some states where the risks are highest — or where state legislatures have demanded premium-increase limitations.

According to The New York Times, “The data show that homeowners insurance was unprofitable in 18 states last year, up from eight in 2013.” For example, in Illinois, the study shows insurers have made money on homeowners coverage in just three of the past seven years. The state was affected by nine separate billion-dollar disasters last year, according to data from the National Oceanic and Atmospheric Administration, including seven severe storms.

While there are good reasons for raising premiums, the insurance companies have been reporting rising profits, as well. Stocks of insurers like Allstate and Travelers are trading near all-time highs. It makes you think you should have bought the stocks as a hedge against your insurance bill!

What can you do?

When you get your much-higher property-insurance bill, you have limited options. These include:

Contacting your insurer. Even if your bill is bundled with your mortgage payment, you can still ask the company to verify its billing decision based on your good payment record. Be prepared for no sympathy — but it’s worth a try. Comparing premiums with other insurers. Several websites including TheZebra.com and HomeownersInsuranceCompare.com allow you to search online. But be prepared for a deluge of contacts from agents. And you may find that the “best” insurers aren’t taking on new customers, making it advisable to stick with the company with which you’ve built a track record. Also, if you change, your premiums could soar even more next year at the new company. Raising your deductible. If you’re wiling to shoulder more of the risk, you can significantly lower the premium. A higher deductible will be costly for a relatively minor event — but then you probably weren’t going to report it to your insurer anyway for fear of a premium increase.

The most startling response I’ve seen is people simply dropping their homeowners coverage completely. Currently, about 7.5% of homeowners are uninsured — with a higher proportion in minority or low-income communities.

Going without homeowners insurance is a bet that you simply don’t want to take with your largest and most important possession.

First, if you have a mortgage, going without insurance is not an option. Your mortgage lender will demand proof of insurance or require the payment be made along with your mortgage payment. So you simply can’t cancel.

But even if your home is fully paid (nearly 40% of U.S. homes are mortgage-free), going without insurance can be devastating to your future. You may think a tornado or fire is a long shot that you’re willing to take without insurance. But your homeowners insurance is also the basis for your liability insurance — which protects you if someone is hurt on your property or sues for some other reason.

The whole point of insurance is to protect against those “long shot” events. And those rising premiums are evidence that the smart-money actuaries who work for the insurance companies believe the risks are rising. Betting against them by going uncovered is not a smart move. And that’s The Savage Truth.