What to Do If You Can’t Afford Your Homeowners Insurance
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The cost of homeowners insurance is surging across the country, thanks to a combination of inflation and expensive natural disasters. Some of the most drastic increases have hit states like Florida, Louisiana and Colorado, following widespread damage from hurricanes and wildfires. But with climate change making disasters more common, high insurance rates may soon be a new reality for homeowners throughout the country.
Here are six steps to try if you can’t afford your homeowners insurance.
Be proactive
If you’re not sure you can make your next homeowners insurance payment, reach out to your agent or insurer as soon as possible — ideally before your policy lapses. Although there may be a grace period if you miss the due date, your insurance company will cancel your policy if you don’t pay the premium.
Letting your coverage lapse can make it harder to find affordable insurance in the future. And if anything happens to your home during the gap in coverage, your insurer won’t pay for the damage.
Touching base with your agent or insurer before your bill is due will give them time to work with you on potential solutions, such as checking for extra discounts or setting up a different payment plan.
Raise your deductible
A homeowners insurance deductible is the part of a claim you need to pay out of pocket. Here’s how it works: If you have a $1,000 deductible and a fire does $8,000 worth of damage to your house, the insurance company would pay $7,000.
Choosing a higher deductible will lower your annual insurance bill. For example, raising your deductible from $1,000 to $2,500 will save you an average of 11% per year, according to NerdWallet’s rate analysis. But if you ever have to make a claim, you’ll have to shoulder more of the expenses yourself.
Shop around
Each insurance company calculates its rates a little differently — so if one gets too expensive, it’s worth seeking other options.
You can get home insurance quotes online, by calling insurers directly or by working with an agent. Some companies such as State Farm have their own agents who sell their policies exclusively. Other carriers sell policies through independent agents who can compare rates from multiple insurers.
We recommend evaluating at least three quotes to make sure you’re getting a good price. However, getting multiple quotes can be hard for homeowners in places like Florida or Louisiana, where insurance companies have been pulling out due to climate risks and other factors. If you’re having trouble finding companies willing to cover your home, consult a knowledgeable independent agent.
Many states have last-resort insurers, often known as Fair Access to Insurance Requirements (FAIR) plans. They serve homeowners who can’t find insurance anywhere else. An agent can help you access these.
Check for discounts
Most insurance companies offer a variety of ways to save on your policy, including discounts for bundling multiple policies, having protective smart-home devices and even working in certain professions. Speak with your agent or company representative to make sure you’re getting all the discounts you qualify for.
Making improvements to your home may also lead to insurance savings if the changes could help prevent future claims. For example, adding hurricane shutters can earn you a discount in Florida. Creating defensible space around your home can not only prevent wildfire damage but may also save you money on California homeowners insurance.
Of course, you’ll want to weigh the cost of these efforts against your potential savings, especially if your budget is limited.
Work on your credit
This may be difficult to do if you’re having trouble paying your bills, but improving your credit can lead to lower homeowners insurance premiums in most states. Many insurance companies use credit-based insurance scores, which are similar to traditional credit scores, to help set homeowners insurance rates.
Studies have shown that people with poor insurance scores are more likely to file claims, so insurance companies generally charge them more — often much more. Homeowners with poor credit pay nearly twice as much for insurance as those with good credit, according to NerdWallet’s rate analysis.
See NerdWallet’s tips for improving your credit fast.
Update your coverage
If you’ve tried all the options above and still can’t afford your home insurance, see whether there are parts of your policy you can change to reduce your cost.
For instance, can you remove optional coverage for things like identity theft or the breakdown of major appliances? Can you get rid of supplemental coverage for jewelry you no longer have? Can you change your roof coverage from replacement cost to actual cash value?
Covering your roof for its actual cash value means that if it’s damaged or destroyed, your insurance company’s payout will be based on the roof’s depreciated value. So if your roof has an expected 30-year lifespan and you file a claim when it’s 15 years old, you’ll get only half of the roof’s value (minus your deductible). Learn more about actual cash value vs. replacement cost.
Reducing your coverage is risky and should be a last resort. If you’re underinsured and something goes wrong, you could end up having to pay thousands of dollars out of pocket to repair your home or replace your roof. But having some coverage is better than having none at all.
What not to do
One thing we don’t recommend is dropping your homeowners insurance policy altogether.
For those with a mortgage, maintaining homeowners insurance coverage is likely a condition of your loan. If your lender discovers that your coverage has lapsed, it will generally buy a policy on your behalf and pass the premium on to you. This is known as “force-placed insurance,” and it usually costs even more than a standard homeowners policy while offering less coverage.
If you don’t have a mortgage, going without homeowners insurance is an option — but it’s a risky one. Say a fire or tornado destroys your home, and you don’t have insurance. You could be left with no belongings, nowhere to live and nothing but your own savings to help you rebuild. Unless you have a hefty financial cushion, this is a scenario worth trying to avoid.
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