Wealth

As climate change threatens more homes, some properties are getting too costly to insure

Firefighters arrive at a burning house in Healdsburg, California during the Kincade fire on October 27, 2019.

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As climate change threatens the U.S. with more natural disasters, it’s becoming increasingly costly for Americans to insure their homes ⁠— and it’s only expected to get worse, according to experts.

“These things are happening more often, and it’s causing more damage,” stated Jeremy Porter, chief researcher at First Street Foundation, a non profit focused on defining U.S. Climate risk.

Indeed, there were 20 separate billion-dollar U.S. natural disasters in 2021 — including a deep freeze, wildfires, flooding, tornado outbreaks and other severe weather — costing a total of $145 billion, according to the National Oceanic and Atmospheric Administration

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Experts believe that homeowners insurance premiums have increased due to rising costs of climate events, labor shortages, and “demand surges” following natural disasters.

“We’re seeing drastic rises,” said Pat Howard of Policygenius, Policygenius’ managing editor and licensed home-insurance expert.

According to a study, premiums rose by 90% in the United States between May 2021 and May 2022. It costs an average of $134 per year more for homeowners. Policygenius report.

The report found that the average increase in national GDP is 12.1%, but that surges are higher in disaster-prone areas like Arkansas, Washington, and Colorado.

Some homeowners hide flood risks

After historic flooding in Eastern Kentucky, water damaged items are pictured outside a house in Squabble Creek (Ky.) on July 31, 2022.

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Brad Wright, a certified financial advisor and managing partner at Launch Financial Planning in Andover (Massachusetts), said that erosion and rising sea levels are increasing concerns for clients who are interested in coastal properties.

There are many questions that need to be asked when someone is considering buying a property along the southern Maine coast. These include flood risks and how much insurance they will need. Depending on the answers, they might choose another home.

Owners may still be unaware that they are buying or owning properties in flood-prone areas. The Federal Emergency Management Agency identified 8,000,000 properties at risk of 1-in-100 year flooding. However, the First Street Foundation found almost twice that number. 2020 report

These family houses have been around for generations and may not require flood insurance.

Brad Wright

Launch Financial Planning Managing Partner

Flood coverage is not covered by standard homeowners insurance policies. However, flood protection is available through FEMAMortgage lenders may require private coverage. According to, the average annual premium is $985. ValuePenguinExperts believe that the cost of high-risk areas may be higher.

Porter from First Street Foundation stated last October that FEMA had revamped their flood risk assessment program. The result was an increase in insurance premiums for coastal properties of $4,000 to $5,000 annually. This is a significant increase from the $700 to $800 range.  

Wright said that these increases can be prohibitively costly for lower-income households or retirees, especially if they are living in a property passed down from a family member. 

He said that these family homes have been around for a long time and may not have a mortgage so flood insurance may not be necessary. “But they should have it anyway.”

Wildfire risk could be very costly to insure

On July 31, 2022, flames erupted in the Klamath National Forest during the McKinney fire.

David Mcnew | AFP | Getty Images

According to Michael Barry, chief communication officer at the Insurance Information Institute, wildfires are included in homeowners insurance coverage. However, premiums for policies in fire-prone areas have become more expensive.

He stated that “the home insurer is looking at pricing the policy to reflect risk.”

According to the California Department of Insurance, premiums rose nearly 10% between May 2021 – May 2022. PolicygeniusThe increase in wildfires that are so costly is partially to blame.

Moving to an area prone to flooding and wildfires can result in a significant increase in your insurance costs.

Bill Parrott

Parrott Wealth Management President and CEO

Bill Parrott is a CFP from Austin, Texas. He is also the president and CEO at Parrott Wealth Management.

“If you move in an area that is prone to wildfires and flooding, that cost will go up dramatically because the carrier will pass that on to the customer,” he stated. “This is a large expense for many people.”

According to the National Wildfire Risk Assessment, at least 10,000,000 properties could be at “major” or “extreme” risk of wildfire. First Street Foundation.

How to reduce premiums for high-risk areas

Barry of the Insurance Information Institute says that regardless of where you live it is crucial to do your research before buying a property.

Before you make an offer, you can use these free tools ClimateCheckOr Risk FactorTo determine the long-term climate risks for a particular property. 

Howard from Policygenius says that homeowners can ask their insurers for discounts for taking steps to reduce potential damage from climate-related events such as stormproofing.

You can also save money by bundling your auto and home insurance policies. Homeowners insurance is no longer a “set-it-and-forget-it” type of thing, he said. 

Howard said that if you have enough emergency savings you might be able to lower your premiums by raising your deductible.

Source: CNBC

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