Americans: Insured Or Uninsured?

Home insurance is not a legal requirement in the US, but it is still very common for Americans to have it. In fact, as of 2023, 88% of homeowners have an active homeowner's insurance policy, although this number is down from 92-95% a few years ago. Home insurance is often required by mortgage lenders, and it can be expensive, with the average cost being $2,151 per year for $300,000 in dwelling coverage. However, this average varies by state, with homeowners in Southern states paying higher rates due to the risk of severe weather, and those on the West Coast often paying lower rates. While home insurance is common, many Americans are underinsured, with 60% of insured households lacking sufficient coverage.

Home insurance costs and affordability

Home insurance costs vary depending on the state, the provider, and the coverage limits. The average cost of homeowners insurance in the U.S. is $1,678 per year for a policy with $350,000 of dwelling insurance, according to Forbes Advisor's analysis. However, other sources state that the average cost is around $1,915 or $2,511 per year.

The cost of homeowners insurance also depends on the location and age of the house, the coverage limits, the deductible, and the homeowner's credit score. The cheapest states for home insurance include Vermont, New Jersey, and New Hampshire, while the most expensive states include Oklahoma, Nebraska, and Louisiana.

To reduce home insurance costs, homeowners can raise their deductible, compare quotes from multiple companies, ask about discounts, and bundle their home and auto insurance policies.

It is worth noting that home insurance pricing has surged in recent years, with a report from Guaranteed Rate Insurance LLC revealing that home premium costs rose by 19% in 2023, marking a 55% increase since 2019. This increase in pricing has put many consumers at risk of not being able to afford homeowners insurance, with over six million homeowners in the United States currently without coverage.

Home insurance claim statistics

Overview

Home insurance is not a legal requirement in the US, unlike auto insurance. However, most mortgage lenders require customers to obtain coverage. As of 2023, 88% of homeowners have an active homeowner's insurance policy, with 95% of homeowners having some form of insurance. Despite this, 6 million homeowners across the US are without insurance, with a notable number being from minority backgrounds. This puts $1.6 trillion in property value at risk.

Claim Statistics

According to a study, 5.3% of all insured homes had a claim in 2021. Between 2017 and 2021, the average property damage claim payout was $15,091, with fire and lightning claims having the highest average payout of $83,519. In the same period, 5.9% of insured homes had a claim, with wind and hail accounting for the largest share of claims at 3%. Water damage and freezing accounted for 1.6% of claims.

Underinsurance

60% of insured households are underinsured on their homeowner's policy, meaning 45.6 million households are at risk if they suffer a covered loss. This is despite the average cost of homeowners insurance being $109 per month in the US.

Claim Amounts

The average home insurance claim amount is $12,474, with 98% of annual claims stemming from property damage. From 2016 to 2020, the average property damage claim amount was $13,962, while the average claim amount for fire and lightning claims was $77,340.

Home insurance and mortgage requirements

While the state does not legally require homeowners to have home insurance, it is usually mandatory to have it if you have a mortgage on your home. This is because the lender will want to protect their financial interest in the property. In the US, more than 95% of homeowners have homeowner's insurance, but 60% of them are underinsured.

Home insurance requirements are set by mortgage lenders and depend on a few factors: the amount of your down payment, the amount of your loan, and whether your home's location calls for additional coverage. Here are the key points to consider:

• Maintain the minimum required amount of coverage: Lenders usually require enough insurance to cover the amount of your loan. For example, if you bought a home for $300,000 with a $60,000 down payment, your lender will want you to have at least $240,000 worth of dwelling coverage. However, it is recommended to insure your home for its full replacement cost.
• Get the right coverages, including additional types: The coverages your mortgage company could require include dwelling coverage, hurricane or windstorm insurance, flood insurance, earthquake insurance, and additional endorsements such as water backup coverage.
• Name the lender as a loss payee: This means listing the lender as an additional interest on your policy, entitling them to a payout in the event of a covered loss.

Mortgage Insurance vs. Home Insurance

Mortgage insurance, or PMI (private mortgage insurance), is different from home insurance. PMI benefits only the mortgage lender and does not cover the homeowner or their property. It is paid for by the homeowner if they do not meet the threshold down payment, and it protects the lender in case the homeowner defaults on their loan. In contrast, home insurance protects the homeowner by paying for damage resulting from a covered claim.

Home insurance and climate change

Home insurance is crucial for the protection of one's financial assets and property. However, climate change is impacting the home insurance industry, causing a rise in insurance rates and threatening housing affordability. As a result, many Americans are finding it difficult to afford insurance on their homes, and this problem is expected to worsen as climate change intensifies floods, wildfires, and storms.

Impact of Climate Change on Insurance Industry

According to the National Oceanic and Atmospheric Administration, the number and severity of storms are already increasing due to climate change. This has led to a rise in insurance rates, with Americans facing hefty increases in their homeowner's insurance premiums. A report by the First Street Foundation estimates that roughly 39 million properties, or about a quarter of all homes in the country, are being underpriced for the climate risk they face. The specific disasters driving up insurance premiums vary across the country, from hurricanes in the southeast to wildfires in the west.

Home Insurance Availability and Affordability Issues

The combination of rising insurance costs and the increased frequency and severity of extreme weather events has made it challenging for homebuyers to secure affordable insurance. In some cases, insurance has become scarce or even unavailable in certain areas. This has resulted in homebuyers walking away from deals, concerned about rising insurance premiums in the future. Additionally, there is a concern that insurance will become unaffordable for some and unavailable for others, further exacerbating the housing affordability crisis.

Disparities in Home Insurance Coverage

It is important to note that the impact of the lack of home insurance coverage falls disproportionately on Native American, Hispanic, and Black homeowners, contributing to racial inequality. Homeowners with annual incomes under $50,000 are twice as likely to be uninsured, and significant disparities exist across different demographics. Furthermore, manufactured homes, inherited properties, and homes in rural areas and specific metropolitan regions are among the least likely to be insured.

Mitigating the Impact of Climate Change on Home Insurance

To address the challenges posed by climate change, it is crucial to improve risk reduction and home fortification measures. Additionally, there is a need for more robust research and application of Fair Housing laws to rectify disparities in insurance coverage. Homeowners can also play a role by implementing mitigation techniques, such as creating defensible spaces and using non-combustible building materials, to reduce their risk of fire damage.

Home insurance disparities

Home insurance is not a legal requirement in the US, but it is crucial for protecting one's financial assets. While the majority of Americans do have home insurance, disparities exist, with certain demographics forgoing this protection.

Who Has Home Insurance?

As of 2023, 88% of American homeowners have an active homeowner's insurance policy. This is a slight decrease from previous years, which saw 92-95% of Americans with home insurance.

Who Doesn't Have Home Insurance?

A recent study revealed that over six million homeowners in the US do not have insurance, representing 7.4% of all properties nationwide. This lack of coverage disproportionately affects certain racial groups, with 22% of Native American homeowners, 14% of Hispanic homeowners, and 11% of Black homeowners uninsured. These disparities contribute to the long-standing racial wealth gap. Additionally, homeowners with annual incomes under $50,000 are twice as likely to be uninsured, and manufactured homes and inherited properties are among the least likely to be insured.

The primary reasons for forgoing home insurance are rising premiums and perceptions of low risk. With home insurance premiums surging, many Americans are struggling to afford coverage, especially those with lower incomes. Some homeowners also believe that the risk of disasters such as wildfires or floods is low in their area, and thus, they choose to save money by not renewing their policies.

Home insurance is key to recovering from disasters such as fires, floods, or other catastrophic events. Forgoing coverage can result in significant financial burdens, as individuals must then shoulder the costs of debris removal and reconstruction. Additionally, research shows that communities with higher rates of insurance coverage tend to have faster local economic recoveries after disasters.

To address these issues, the Consumer Federation of America's report "EXPOSED: A Report on 1.6 Trillion Dollars of Uninsured American Homes" suggests several measures. These include urging state insurance regulators to gather more data on insurance gaps and disparities, investing in community risk reduction and home fortification, and investigating the incidence of insurance "redlining."

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