This Hidden Risk Is Raising Home Insurance Costs - 5 Ways To Help Reduce Premiums

Insurance premiums are going up nationwide, and not just in areas we traditionally think of as high risk. These costs get built into homeowners' bills, including in mortgage payments themselves.

For retirees, this can be especially burdensome as premiums rise faster than Social Security or pension checks, threatening to derail retirement plans. Here's more about the causes of the increase, as well as what you can do to keep insurance costs as low as possible.

What's behind rising premiums?

In addition to rising building materials and labor costs, one hidden risk is the trend of more frequent and costly weather events. These hurricanes, wildfires, tornadoes, and droughts lead to increased losses and put insurers in a difficult spot because they set pricing models and rates to absorb these losses. In recent years, the steady stream of large, expensive events has led to higher insurance payouts overall.

So, when those payouts climb, insurers often raise premiums for everyone in an area, no matter if you've filed a claim or not. They may also tighten coverage, pull back from covering an area altogether, and then buy more and more expensive insurance for themselves (called "reinsurance") to protect their companies from future losses.

Why retirees are especially vulnerable

Insurers often respond to these increased costs by raising premiums for everyone, even those not in high-risk areas. These customers include seniors who live on fixed incomes like Social Security payments or limited withdrawals, which may not increase as much as premiums do.

A double-digit increase can force seniors to make tough choices, such as cutting spending, lowering their coverage, or taking on more risk themselves. And with many retirees living in older homes that cost more to insure, it just adds to the cost burden. Premiums for these homes can be higher if they can get insured at all.

Fortunately, there are some steps seniors can take to mitigate at least some of the price inflation.

Shop around every year

While some companies reward loyalty, insurers are known to use widely varying pricing models and formulas. They might discount new customers in ways they don't for their existing ones.

Comparing prices has huge savings potential, especially if it's been a few years since you've shopped around.

Just be sure to match key coverage pieces when comparing, including dwelling limit, deductible, liability, and key riders for things like outbuildings, boats, or flood coverage. Independent brokers, who aren't loyal to a single insurer, may find you a better deal than you could on your own.

Bundle home and auto

In some cases, buying home and auto insurance from the same company gives you access to significant discounts. This isn't always the case, so you'll still need to price compare. Some companies are known for cheaper car insurance, while others win on home.

To get the clearest pricing, ask your agent to quote home only, auto only, and a bundle of the two. Simply being open to combining them may be enough to slash your premiums. (Remember to re-check the bundle annually to make sure it's still the best offer, as base rates in some states change frequently.)

Raise your deductible

The deductible is a trade-off with premiums, where bigger ones result in lower monthly bills (and vice-versa). For example, moving from a $1,000 to a $2,000 deductible may be a safe bet if you have that much set aside in a cash reserve and can comfortably absorb any losses. You can often see the premium go down — or at least avoid another unaffordable increase.

If you can't comfortably handle the deductible, avoid going this route. You don't want to put yourself in a position to avoid making a much-needed claim simply because the deductible is out of reach.

Improve your credit

Some states allow insurers to use insurance-based credit scores as a factor in setting rates. The premise here is that a person who's a higher credit risk may also be riskier to insure. Not all states allow this pricing strategy, but if you live in one that does, working on your score may be doubly beneficial.

Not only do you get the benefits of better credit, such as lower interest rates on new credit or access to better credit tools, but you could (after asking for a re-rating or policy review) see premiums go down, too. Ask your insurance agent how much effect, if any, credit has on your insurer's pricing model. Then, pay down debt or make timely payments to see your good credit decisions play out across your premium bills.

Install safety and risk-reduction upgrades

Finally, you can take steps to improve your home and your pricing at the same time.

A new roof, a security system, or storm-rated windows are more expensive enhancements that may prompt a premium discount.

Less involved fixes include wireless leak sensors near the water heater, monitored fire alarms, and automatic water shut-off valves. If you're unsure where to start, ask your insurer what they reward and request a review after every upgrade.

Bottom line

Weather events may not let up anytime soon, and that means premiums will likely continue to rise. While you can't control the next hurricane or tornado, you can control how you buy your insurance and the small steps to make your home more insurable.

A smart homeowner move is to review your insurance every year. Shopping around for a new insurance company may not always be convenient, but it's sometimes the best way to avoid overpaying. An independent insurance agent can compare policies from multiple insurers and help you find the best value for your needs. You may be able to pay a little less on insurance without losing sleep over whether you're adequately covered.