Home insurance: what you should know before you buy

In 2016, when Shawn Loht bought his home near New Orleans, he easily found homeowners insurance with a premium of $2,000 a year. “It was just a moment,” he said. But after Hurricane Ida, a Category 4 storm, hit Louisiana in 2021, his premium went up to $6,109. Then his provider failed, leaving him facing a premium of nearly $13,000 a year from the state insurer of last resort.

“We were about to get priced out of our house,” said Loht, 42, a research manager at a local community college.

Mr. Loht’s experience has become increasingly common as insurance companies react to cascading natural disasters by raising rates, reducing coverage and exiting some markets entirely. Last month, State Farm, California’s largest insurer, announced it would stop issuing new homeowners insurance policies in the state, signaling that more of the costly wrath of climate change is hitting homeowners. . And Allstate, the state’s fourth-largest insurer, stopped selling new home, condo and commercial insurance policies last year, confirming the switch to The San Francisco Chronicle last week.

“We should be absolutely nervous that this could happen regardless of whether you live in California or if you live in northern Colorado or somewhere like Nebraska or northern Mississippi,” said Pat Howard, a home insurance expert at Policygenius, a online insurance market. “These disasters are wiping out large swaths of homes, and insurance companies are responding in kind by getting out of there.”

Mr. Loht eventually found a $4,500-a-year policy with USAA, an insurance company that serves veterans and their families, avoiding the expensive alternative. But other homeowners may have to get creative to protect their property and their pockets.

Before buying a house, examine the risks. Enter your home address into a risk calculator, such as Free Home Risk or Risk Factor, to see what dangers await you. “Be critical of the questions you ask,” said Sean Kevelighan, executive director of the Insurance Information Institute.

Talk to your real estate agent about adding an insurance contingency to your offer, so you can cancel your sales contract if insurance costs make the home unaffordable. Check your insurer’s rating from AM Best, which monitors the financial stability of insurers. “Anything less than an A-less from AM Best, then you don’t want your home insured,” Howard said.

Look for a new policy each year, as rates and needs change. Inflation has drastically affected construction costs, so your current coverage may no longer be adequate. “Make sure you understand what the policy is doing, how much it costs to rebuild,” said Mark Fitzpatrick, insurance lead at MoneyGeek, a financial advice website.

Please read the terms carefully as coverage varies even within a policy. Make sure your policy covers the replacement cost, not the actual cash value, of your home and its contents, or you could fall short. Coverage for damage like mold or a sump pump failure could be limited to a few thousand dollars. “It’s in the fine print that can make the difference between being able to rebuild after a weather disaster and not,” said Carolyn Kousky, author of the book “Understanding Disaster Insurance.”

Think about your deductible. Do you have enough savings to pay for it in an emergency? Decide if you need a policy that covers temporary accommodation, should you be displaced. Consider getting flood insurance even if you don’t live in a flood zone, as millions of homes are at risk of flooding. “The damage that a flood causes is really visceral,” said Holden Lewis, a housing and mortgage expert at the website NerdWallet.

Current coverage is not a guarantee of what will be available in the future. Bundle your homeowners policy with your auto policy for a discount. And make sure you don’t have too much insurance with coverage for risks that don’t affect you. If you can’t find a private provider, check with your state insurance department for guidance.

Consider making home modifications, such as securing your roof against wind damage, or cutting brush from your home to reduce the risk of fire. These improvements will not only reduce your personal risk, but can also provide savings on your insurance policy.