In a daring move, a growing number of homeowners in the United States are choosing to gamble with their most valuable asset, their homes, by opting out of home insurance coverage. This shift, according to industry insiders, is largely driven by the surge in insurance premiums, which have jumped a staggering 20% from 2022, pushing the national average for home insurance to an annual $1,428, based on $250,000 in dwelling coverage, as reported by Bankrate.
This trend, while primarily fueled by financial considerations, also finds its roots in the belief of certain homeowners, particularly among the affluent, that their savings are sufficiently robust to cover the costs of rebuilding or relocating in the event of a disaster. However, financial advisers warn that such a gamble is fraught with significant risks, and few individuals can financially withstand the loss of an uninsured home, especially considering the soaring costs of rebuilding or purchasing a home in many parts of the country.
Homeowners Opting Out of Insurance Despite Rising Risks
Increasing Costs, Rising Risks
A rising trend among homeowners is the decision to forgo home insurance, a gamble predicated on the belief that the possibility of disaster does not warrant the expense of a policy. This decision is often driven by the steeply rising costs of home insurance premiums. The national average for home insurance, based on a $250,000 dwelling coverage, has risen to $1,428 annually, marking a 20% increase from 2022, according to Bankrate.
The Wealthy and the Uninsured
Wealthier homeowners, confident in their savings, believe they have sufficient funds to rebuild or relocate if their home is destroyed. However, the risks associated with forgoing insurance are substantial. Without insurance, homeowners stand to lose not just their house and its contents in the event of a disaster, but also face additional costs in removing the remains of the house and reconstruction. Noah Damsky, a financial adviser from Los Angeles, warns that going without home insurance is a risky proposition and homeowners need to comprehend the financial implications if they lose their home.
Dwindling Coverage, Rising Costs
Increasingly, homeowners without a mortgage or those having inherited a home are choosing to drop insurance due to the high costs or unwillingness to accept the current premium rates, says Amy Bach, executive director at United Policyholders. This includes homeowners like Larry Farinholt, a retired public defender, who estimates saving over $50,000 on his Los Angeles home by not having home insurance for more than 25 years. Farinholt believes that the risk of wildfire or flood in his neighborhood is minimal, and he has enough savings to move into a condo if he loses his house.
The Uninsured and the Mortgage Market
Around 12% of homeowners in the U.S. do not purchase home insurance, with about half of them having annual household incomes of less than $40,000, according to a 2023 survey by Insurance Information Institute. If a homeowner with a mortgage fails to purchase insurance, the lender will typically opt for lender-placed insurance, which tends to be more expensive. The rise in insurance costs is a significant setback for both current and aspiring homeowners. Some borrowers are falling behind on mortgage payments, attributing the delays to unexpected hikes in insurance premiums.
While wealthier homeowners find ways to circumvent the problem, this trend might push potential buyers out of the housing market. They may either be unable to afford a home or fail to qualify for a mortgage due to the increasing insurance costs. This trend underscores the need for a more comprehensive and accessible insurance solution, as going without insurance can have detrimental consequences for homeowners, particularly in disaster-prone areas.