Homeowner Insurance keeps going up, Home Values going down?

Question

Assuming you remain a good driver and keep the same car, most auto insurance rates will go down as the car gets older. So if you don't make any homeowners claims and with housing values dropping, why does my homeowner insurance keep going up? From 2005 to 2008, my premium's gone up about 30%. I think they claim that the housing "replacement value" has also gone up. How true is that?

Answer 1

OK, but you're talking about two different values here!  ARe you saying that the contractors are charging LESS for repairs?  Or that the prices of supplies are going DOWN at Home Depot?  I don't think so!  You're confusing MARKET VALUE, what the home would sell for, with COST TO FIX, which is what the insurance company has to pay.  

Darned tootin' replacement value has gone up.  Contractors are charging more.  Cost of wood has gone up, also.  It's not about what your house will SELL for, it's about what it costs to FIX it.

And, for the record, MOST auto rates don't go down from year to year, even with a good driving record - between inflation, and new cars, they're flat if you're lucky.  

ANYWAY.   Back to your subject.  If you really think that your house is overinsured - figure $200 per square foot in most areas, to fix - call your agent.  Have them come out, and re-calculate the cost to rebuild your home, if it burns to the ground.  Any decent agent will do this for you, once every three years or so, if you ask them.  Yes, it does happen that sometimes houses are overinsured.  More often, though, they're underinsured after about 10 years or so, so be prepared - whatever number they get, that WILL be the number used on the policy.  

And I think that your REAL problem is the price you're paying.  So lets talk about how to reduce your premiums.

1.   Increase your deductible.  Assuming you're not going to put in a small claim, take at LEAST a $1,000 deductible - it can save up to 25% on your policy.

2.  If you've updated your home in the past 20 years, tell the company.  They're careful about wiring, plumbing (think, hot water heater), heating/cooling, and roof.   If you haven't remembered to tell your agent about the updates, you can be getting a surcharge for an old system.

3.  Think about moving your car insurance to the same company.  Some companies offer 25% savings, OR MORE, if both policies are with the same company.

4.  Ask your agent if there's anything else you can do - some companies can "retier" (think, reprice) you, if you request it.  Now, it's not going to happen that way in FL, LA, or TX, but hey, if you're not in one of those states, your agent will be able to give you the best specific advice about cutting your premiums, without actually cutting your COVERAGE.

Answer 2

The insurance companies are still recovering from the huge losses of Katrina and other hurricanes and disasters, and we are all paying for that. But then again, spreading the loss amoung many people is the whole idea behind insurance.

Answer 3

The cost of building materials has gone up.

Shingles are made using gasoline. Gas prices go up. The cost to make the shingles goes up. The cost to transport the shingles from the plant to Home Depot goes up. (again- gas is used to transport). Therefore, the cost to put a new roof on your home goes up.

The coverage of your homeowners insurance is based on what it would take to rebuild your home as it is today. NOT what the market would sell it for. It is very possible that the cost to build the home is more than what you could sell the home for.

A good example is a 1970's all brick home. The home may sell for one price. But since it's all brick -- and brick is very expensive (that's why many high end new homes are brick on 1 side only). Therefore, the 1970's all brick home is much more expensive to build today that you may be able to sell it for.

Answer 4

Sorry to hear that the your insurance premiums are going up -- but the "value of the house" is not the only determinant of an insurance premium.

The cost of homeowner’s coverage depends largely on where you live. Crime rates vary from community to community and so does the access to your local fire department, police department, and water supply. These factors help determine the protection class. Along with the value of your house, the following factors determine the rates you pay for home-owner's coverage.

Type of Construction: Frame houses usually cost more to insure than brick.

Age of House: New homes may qualify for discounts. Older homes may not qualify for preferred programs. Insurers may require older homes to have updated heating, plumbing, wiring and roofing.

Local Fire Protection: Your home’s distance from a fire hydrant and the quality of your local fire department determine your fire protection class.

Amount of Coverage: The amount of coverage you buy for your house, contents and personal liability will affect the price you pay.

Deductible Amount: Your choice of a higher deductible will reduce the price for homeowners insurance.

Discounts: Insurers offer lower prices for such things as insuring your home and car with the same company and installing dead-bolt locks or alarm systems.

Also remember that loss experience may drive up the cost of insurance.  For example, in San Diego, wild fires wiped out whole communities.   Hurricanes devastated whole regions.

Answer 5

It's quite true.  While the MARKET value of homes has decreased somewhat, depending on where you are located, the costs of REPAIR or REPLACEMENT has NOT gone down accordingly.  If anything, it has increased, and this is the reason your insurance premiums keep rising.