Most of the time, homeowners pay little attention to their insurance policies. After making their payments, most people don't think about their coverage again – unless disaster strikes.
This is probably the situation for many Southerners dealing with the fallout of Hurricane Ian. In September 2022, the apocalyptic storm made landfall in southwest Florida, destroying thousands of homes and taking more than 100 lives. The insurance fallout is also massive: Experts have declared that the category four storm was the costliest in the state's history as insured damages surpassed $67 billion.
The increasing number of catastrophic weather events like hurricanes and wildfires are straining homeowners and insurers, leading to significant changes in the insurance marketplace. As a result, homeowners are facing rising costs or even canceled premiums. In fact, our own consumer data revealed that these types of disasters also drive many people to reevaluate their insurance coverage and shop for new insurers.
The following report is part of our annual look into the homeowner insurance industry based on data from the hundreds of thousands of consumers that interact with SafeHome.org and analysis of more than 1,400 homeowner policies.
Ninety-four percent of American homeowners have homeowners insurance. On average, they pay $1,584 yearly, or $132 per month, for coverage. Southern homeowners have the nation’s highest average premiums at $1,834.
43 percent of homeowners said their annual premiums increased in the last year.
About one in four homeowners have filed claims on their homeowners' insurance, and the average claim amount was $20,700. Those who had filed claims paid nearly $400 more per year than those who had never filed claims.
Around one in ten homeowners are planning to switch to a different insurance company in the near future. Of those who plan to change insurance companies, 76 percent are doing so to get a better price.
What Does Homeowners' Insurance Cover?
Home insurance protects all parties with a financial interest in the home against financial loss, including homeowners and lenders. Our policyholder analysis showed that 94 percent of American homeowners have home insurance policies. These policies typically offer six types of insurance protection for the following:
The home's actual structure, or the dwelling
Other structures on the property
The contents of the home
Loss of use of the home
Liability coverage for injuries on the property (only covers people who do not live there)
Some medical payments for visitors injured on the property
Home insurance policies also explain how they will pay for a loss. There are two main types of coverages for the dwelling:
Type of dwelling coverage
What it covers
Percent of insured homeowners who have this coverage
Actual cash value (ACV)
Reimburses homeowners for the actual value of the structure, also known as the depreciated value
Reimburses homeowners for the actual replacement cost to rebuild a new structure at current prices (up to a maximum limit). Guaranteed replacement coverage will reimburse about 20-25 more than standard replacement coverage.
Note: 17 percent of homeowners weren’t sure of their dwelling coverage.
It stands to reason that homeowners have replacement cost coverage at the mortgage lenders' requirement to protect their interests in the home. Homeowners might choose ACV coverage when there is not a lot of value in the structure of their home (such as a mobile home).
Popular Optional Coverages
Home insurance policies list a host of exclusions. Typical exclusions are flooding, earthquake damage, and water that backs up through sewers and drains. Nonetheless, homeowners may be able to add these coverages back into their policies if they're at risk. Our analysis of insurance policies showed that 77 percent of homeowners had additional coverage on their home insurance policies. The most popular was dwelling replacement coverage.
10 most popular optional coverages
Percent of insured homeowners
Valuables such as rings or antiques
Personal injury (covers legal fees from slander or libel suits, wrongful eviction, or false imprisonment)
Water backup coverage
Hurricane, flood or wind coverage
Identity theft protection
Service line protection
Yard and garden
Note: Multiple responses allowed
A homeowner's geographical area, lifestyle, pets, business needs, and hobbies all have a bearing on the additional coverages homeowners choose. For example, homeowners who live on or near a fault line may benefit by having earthquake insurance.
About one in ten homeowners added identity theft protection to their policies. This is a rapidly growing crime: about nine percent of people age 16 or older fell victim to identity theft in just one year, according to the Bureau of Justice Statistics. Online shoppers, those who use public Wi-Fi, and those who use the internet often may benefit from adding this coverage to their policies. However, banks and credit card providers also offer help in case of identity theft.
Water losses can happen even in places that do not flood, making this optional coverage very popular. Nearly a third of people with insurance added this to their policies. Water backup coverage pays for losses where water backs up through sewers or drains, but it does not cover flooding damage. Water backup coverage is inexpensive and a small price to avoid messy water losses.
Current Cost of Homeowners' Insurance
The cost of home insurance varies based on many factors related to the home, homeowner, geographical location, and house size. On average, we found that American homeowners pay $1,584 yearly, or $132 per month, for homeowners' insurance.
Recent hurricane activity has undoubtedly affected the rising premiums in the South. Jim Donelon, Louisiana's state insurance commissioner, says losses from Hurricane Ian could reach $25-$40 billion, a massive hit to the reinsurance marketplace. Inflation in the costs of construction materials adds to the problem. Overall, inflation impacts home insurance, as claim payouts cover personal items and other amenities such as temporary housing.
The popularity of swimming pools, especially in warm climates such as the South, could also be a factor in rising home insurance premiums. Homes with in-ground swimming pools pay 40 percent more on their premiums than non-pool owners. This is because of pools' inherent risks, such as injuries and drownings.
The average home size has increased over the last several decades, contributing to growing premiums. The average size of a family home in 1970 was around 1,800 square feet. Today, the typical home is approximately 2,400 square feet. Larger homes cost more to repair or rebuild, so they tend to have more expensive premiums.
The construction materials used in homes also impact the cost of insurance. Though concrete homes are strong in the face of fire and weather, significant problems can occur during installation that can cause instability. Furthermore, concrete walls and foundations can erode or develop cracks. It costs five to 10 percent more to build (and replace) a concrete home than a wood-framed home. This is why these homes cost more to insure.
Home Insurance Premiums are On the Rise
Our analysis revealed that 43 percent of homeowners had noticed increased insurance premiums this year. Another 47 percent said their costs remained the same. Increasing costs may be driving homeowners to reevaluate their coverage and explore their insurance options.
However, the reasons consumers think their home insurance rates are rising may not be factual. Thirty-four percent believed their home insurance rate increased because their property values increased. In reality, home insurance companies do not consider homes' real estate values. They are only interested in the actual costs required to rebuild homes at the current construction prices.
We also found that 29 percent of people thought their insurance companies raised rates to increase their profits. However, insurance companies have had decreased earnings because of increased natural disasters. Many insurance companies have backed out of the homeowner market in Florida because of excessive claim payouts.
Homeowners who recently filed a claim noticed an increase in their insurance premiums. As with auto insurance, homeowners' insurance companies commonly add a surcharge for three years after a claim is filed.
Also, homeowners living in disaster-prone areas can expect to pay higher out-of-pocket costs for insurance. The extensive hurricane activity in the South has forced many insurance companies to establish a separate higher deductible for damage caused by wind and hurricanes. Often, the deductible for this damage is a percentage of the dwelling coverage, ranging between one and five percent.
The homeowner's credit score is also a critical factor in rating premiums. If your credit score drops, your home insurance cost may increase. Conversely, if the score goes up, the premium could decrease.
How Claims Impact Homeowners' Insurance Costs
Our policy analysis revealed only one in four homeowners had ever filed a claim on their homeowner's insurance policy. Less than one percent reported filing a claim for a total loss on their homes. Claimants reported paying $367 per year more on average than non-claim filers.
Non-weather damage, such as plumbing problems or appliance issues, was the top cause of claims, followed by hail. Hail damage can be extensive, as it can put dings and holes in roofs and large areas of house siding.
What was the nature of the claim(s) you have ever filed with your homeowner’s insurance?
Percentage of claimants
Non-weather-related water damage, such as plumbing or appliance issues
Weather-related water damage, such as rain, melting ice, or snow
Wind damage from a tornado or hurricane
Accident or liability
Note: Multiple responses allowed
While no one likes to file home insurance claims, 77 percent of people who had said they were happy with how their insurance company handled them.
Homeowners Are Planning Changes to Their Policies
Our analysis of homeowners insurance policies and insights from 11,000 people interested in insurance coverage revealed how homeowners may respond to changes in the insurance industry. Motivated by natural disasters and rising premiums, many people are researching their options online and considering new insurers.
According to our policyholder analysis, 87 percent said they would not make any changes to their homeowner's insurance at the next renewal period. Still, others were planning to change their coverage or even their insurer.
What changes in your homeowner's insurance coverage are you planning in the next 12 months?
Percentage of insured homeowners
I have no plans to change
I plan to change insurance companies
I plan to change my coverages
Note: Multiple responses allowed
Around one in ten homeowners plan to switch to a different insurance company. Of those who plan to change insurance companies, the vast majority are doing so to get a better price, and many others are looking for better bundling options.
Another six percent of insured homeowners are planning to change their type or level of coverage. Most want to find more affordable coverage. They will look at options like reducing some optional coverages or getting quotes on higher deductibles.
Changing coverage can be risky, especially for homeowners who fail to heed the guidance of their insurance agents. For example, our study found some homeowners are planning to reduce their dwelling coverage amount. Between the rising cost of construction materials and increased weather disasters, homeowners could be out-of-pocket by the thousands if their home gets damaged. Others may be removing coverages such as water backup or identity theft. Those who do so may find themselves in the lurch if they have to file a claim.
Popular Discounts on Homeowners Insurance Policies
While homeowners must do a balancing act to find sufficient coverage at an affordable price, they can also save on insurance by leveraging every possible discount.
10 most common policy discounts
Percent of insured homeowners
Home and auto bundle
Fire alarms and extinguishers
Automatic monthly payments
Paying annual premium in total
Deadbolts on doors
New home discount
Electrical, heating, or plumbing upgrades
Note: Multiple responses allowed
An easy way to save is by bundling home insurance with auto insurance or other policies. We found that 60 percent of respondents are already doing this. Homeowners also get discounts for smoke alarms and fire extinguishers, which most people already need to have in their homes anyway.
Around one in four insured homeowners got discounts on their policies because they used home security systems. Alarm systems are typically affordable and can help prevent burglaries and theft claims. While it is nice to get quotes once in a while, homeowners should know staying with one company can earn them a loyalty discount every year. Finally, homeowners who can swing a payment in full will be rewarded with a discount.
Home insurance is something nearly every homeowner is required to have. Homeowners fortunate enough not to have a mortgage should still protect their interests with a home insurance policy.
Without a doubt, home insurance premiums have been increasing because of weather and non-weather-related claims. The extreme nature of natural disasters seen almost daily on the news may also encourage homeowners to consider whether they have enough home insurance protection.
The insurance world is multi-faceted and highly complex, creating a lot of uncertainty for homeowners. If anything is sure, homeowners can expect changes in their homeowner policies in the next few years, whether their insurance company makes them or they choose to make changes themselves.
In September 2022, Safehome.org conducted an online analysis of 1,503 homeowners in the U.S. 94 percent (1,412 participants) had a homeowners' insurance policy. Insured participants agreed to locate and view their homeowners’ insurance policy and answer a series of questions based on its content.