Many people are already experiencing home insurance price increases of hundreds or even thousands of dollars by 2022. Rising construction costs are a big factor, but homeowners in disaster-prone states like Florida and California has an even worse problem than most homeowners. As climate change increases damage from hurricanes and wildfires, home insurance prices are weighing heavily on the financial plans of current and future retirees.
“Homeowner’s insurance prices are rising and rising at a pretty significant rate in places like Florida, places like coastal Carolina,” said Robert Hartwig, professor of risk management and insurance at the University of California. places like Texas, which are popular with retirees. University of South Carolina.
We do not sell your information to third parties.
More than one-fifth of people living in Florida are over the age of 65, where insurance is inherently expensive or impossible to obtain due to several insurers’ bankruptcy. While Governor Ron DeSantis signed legislation in December to stabilize the insurance market, there is no legislation that can reduce the frequency or severity of extreme weather, and Florida, like other states in the risk areas, has done little to prevent people from building in vulnerable areas, Hartwig said.
“The reality is that much of the increase in property damage caused by climate events is demographic and economic,” he said. Whether in areas prone to floods or wildfires, people continue to build in harmful ways.
Many retirement plans predict that you will spend less when you stop working. One challenge in retirement is that you only have a finite amount of money to live on. Owning a home can help stabilize your housing costs, as you don’t have to worry about landlords raising your rent. But fluctuating insurance costs can cause those calculations to go wrong, and post-retirement income sources like Social Security may not be able to keep up. For example, homeowners insurance prices rose 12.1% in the year ending May, while Social Security’s latest cost of living adjustment was 8.7%.
What to do when insurance costs increase?
If you’re planning to retire, you may have to consider how a changing climate might change your insurance costs. A state with low income taxes and an affordable cost of living may not be as appealing when you consider the climate risks.
“That has to be a factor when someone is about to retire and thinking about their post-retirement budget,” says Hartwig.
Tom Balcom, a certified financial planner and founder of 1650 Wealth Management, says several of his clients have talked to him about the high costs of insurance, with some considering taking self-insurance — saving enough money to pay for any damage to their home on their own.
“One of my clients has essentially doubled down on insurance in the last five years and is weighing the risk of not renewing her policy,” says Balcom.
But he cautioned against self-insurance, especially in Florida, where hurricanes are a frequent risk and difficult to measure. You may have enough money to rebuild your house, but what if you were responsible for a fire that started in your living room and burned down your neighbor’s house?
With regard to cost control, I have recommended that some clients consult their insurance broker to ‘shop at their rate’ and look for options, says Balcom. Better terms from other insurance companies.
You can also review your policy to see if you can drop or reduce coverage to lower your premiums.
Another way to lower your home insurance costs is to live in a less risky area. When you buy a home, consider not only whether the area is prone to flooding or fire, but also the house itself. Newer homes are typically built to stronger building standards and can withstand less damage in the event of a disaster, Hartwig said.
For some, the allure of retiring by the beach may be too strong to negate. But you should know that it comes with increased risks and ever-increasing costs.
“Retirees will need to consider the fact that higher prices on homeowners insurance, apartment insurance, renters insurance, will be a fixture in relocation planning,” says Hartwig. for retirees at a visible level.
