As if the dropping value of their homes wasn’t enough to concern committed homeowners, homeowner’s insurance providers have begun trending towards higher premiums after five years of relative stagnancy.
The increases in most cases have been far from negligible. State Farm has admitted to raising premiums in 18 states at an average of 7.3%. Some homeowners in Florida saw a rise of 11%, while in unlucky policyholders in Pennsylvania were forced to cope with a 33% rise in premiums last year.
Unfortunately, the cost of homeowner’s insurance does not depend on home values, but on the price of repairs – leaving homeowners trapped in a sluggish economy, pinched between dropping home values and rising costs of building supplies.
The bad news for homeowners doesn’t end there; the recent natural disasters in Alabama and Mississippi have depleted the reserves of insurers and will prompt them to raise premiums even more in order to replenish their coffers.
Effects from Hurricane Katrina are still being felt as Congress is looking for options to unload $18 million still owed for repairs. One proposal would allow the limit on annual premium increases to rise from 10% to 20% - possibly doubling the price of premiums for high-risk areas. The National Flood Insurance Program believes this might cause insurance rates to reach almost $6,000 dollars annually in the most risky areas.
Many Americans are already under-insuring their homes to save money. Today, policies don’t necessarily include guarantees on coverage and replacement costs. Insurers will only pay out the amount specified on the policy plus 20-25 percent more; leaving homeowners on the hook for any additional expenses above this amount.
Certainly it is in a homeowner’s best interest to be covered for the full amount of their home. Unfortunately, the current landscape leaves customers little recourse other than carefully shopping around and scrutinizing options.