Homeowners' Insurance - Why so Much?

We bought our home about 5 years ago, and at the time the homeowner's insurance was about $750 per year.  Our most recent renewal was for $1249- a jump of over 50%.  Even 2 years ago it was about $850.  We have had no claims and no other changes to the property.  House is in a pretty rural area with low crime.  

One thing I did notice, that the property was insured for 300K.  Our most recent tax assessment was for $230k.  I called and asked about that and they said that they could not insure it for less.  I told them that we only owe 140k on the mortgage- so why does it have to be insured for over twice that?  Couldn't get a good answer.  Also, note that we have 3 acres- so a lot of the value of what we have is in the land.  Fire/theft/whatever doesn't destroy land.  

The odd things was, I went to another insurance co's website and they quoted me within $50 of my current rate- and they also claimed the home to be worth 300k.  i don't understand this, nor why I can't just buy the insurance I need to cover the assessed value (or, really, just what is owed on the house, to protect the lender).

Thinking i may go visit a local insurance agent, and see if I can do any better.  Anyone else got any ideas?

Do you live by water? FEMA may have re-evaluated the flood plain. 

Your insurance isn't based on what you owe on the property, its based on the replacement cost of the property if you had a total loss, weather factors, etc, etc.

My homeowners went up a bunch because we've been having some serious hail storms in Colorado the last few years...

Yeah, I went round and round with a few companies too and got the exact same answers from them.  The  answer to "why so much" is "because you have to buy it, sucka."  They justify it by saying you have x,xxx sq ft and the current build cost is $140/ft^2, so multiply it together and that's what you have to insure for.  I, too, argued that if I owed 100K on the property and the lender required insurance, then I only needed 100K of insurance.  That didn't fly.  Because you have to have insurance and they sell it, and why should they sell less than they can, maximizing their revenue stream?

Ours has jumped a bunch too, and makes up a significant share of the mortgage bill.  I wonder how much of this is companies trying to catch up and cover their obligations from huge disasters like Houston and Florida and the California wildfires.

Our home insurance carrier automatically raises the premium, and typically every 3 years it gets stupid. As you mentioned you are cove9the cost of the house and its contents. You should be able to find a carrier that sees the proper value for the dwelling and adjust the premium accordingly. My agent is good at helping us navigate the mess.

Appleseed said:

Do you live by water? FEMA may have re-evaluated the flood plain. 

Our house is approximately 50 miles from the ocean and at an elevation of 900 feet.  We're on top of a hill.  If our E36 M3 floods...I'm going to be consulting the Bible as to why.

I get that insurance is based on replacement cost...but I also thought that if one didn't have a mortgage, they didn't necessarily HAVE to carry insurance.  So, to some extent, yes, it is there to protect the lender.

Besides all that...$300,000 to completely clear the building site and put up an identical 1700 square foot home seems excessive.  Typical construction costs for new are about $125 per square foot.  

I understand it this way: You're paying for the cost to rebuild a similar house to what you have now up to code using today's construction prices. You're also paying to replace all of the things inside the house also covered by homeowner's insurance. On top of THAT, you're also paying for the wildfires in California and all that jazz.

 

In reply to Brett_Murphy :

Yep, I get all that.  Perhaps I need to see if I can adjust the personal property protection.  My $200 flat screen, Target-based wardrobe, and wife's HUNDREDS of dollars worth of jewelry and watches don't really jive with what they probably figure most folks stuff their living holes with.

Oh, I checked- and the 300k was just for the house.  There was another 80k in personal property on top of that.

I live on the water, in a flood zone, in a hurricane prone area....I don't want to talk about insurance.

The state regs have a lot to do with it as well. You have to remember that if your house burns to the ground the insurance isn't responsible to pay off your loan- they are responsible to rebuild the house. I work in the industry and we often have people that are underinsured. when they have a catastrophic loss, and they don't have enough to cover the repairs they complain to the state, who- guess what? Tell the insurance company to pay for the full repairs. So now the carrier paid for full repairs without receiving the full premium. Another thing to consider is that if there are extreme events happening in your state or nearby, it causes inflation on building materials, which have to be reflected in the premium. I'm in CA and I pay a lot because of all the wildfires we have. It's the new normal. 

Brett_Murphy said:

I understand it this way: You're paying for the cost to rebuild a similar house to what you have now up to code using today's construction prices. You're also paying to replace all of the things inside the house also covered by homeowner's insurance. On top of THAT, you're also paying for the wildfires in California and all that jazz.

 

Don’t forget hotel or rental costs in the interim, depending on your policy. 

Our house is insured for $329k. I could probably sell it for $375k. If the house was a total loss from a fire or something, I’d actually come out way ahead: 

I’d take the insurance money and pay off our mortgage, sell the lot to a developer, and use those funds to buy a similar house to our current one. Developer would put up a McMansion. The house actually decreases the value of my property. 

EDIT: this is assuming that such a thing is allowed. I don’t see why it wouldn’t be but I’m not very familiar with homeowners insurance. 

Oh, and for E36 M3s and grins, read the fine print on what they cover for contents.  Things like "we'll cover $10,000 for lost firearms.  At a maximum of $20 each."

Dr. Hess said:

Oh, and for E36 M3s and grins, read the fine print on what they cover for contents.  Things like "we'll cover $10,000 for lost firearms.  At a maximum of $20 each."

 

I have my guitars on a rider 

Dr. Hess said:

Oh, and for E36 M3s and grins, read the fine print on what they cover for contents.  Things like "we'll cover $10,000 for lost firearms.  At a maximum of $20 each."

 

Note to self:  Buy 500 Saturday Night Specials.

Just ha another conversation with an agent.  A bit more knowledgable.  She claimed our rate went up $300 last year because I moved our auto insurance to another company (loss of multi-line discount).  I told her that was because that company saved us about $800 per year on auto insurance- and if they didn't do something about it, they were about to lose my homeowner's insurance, too. 

Companies can be pretty berkeleying stupid sometimes.

My home owner's insurance is about the same and my house is worth less than half as much and my lot is smaller than your driveway.   While I do live near water, the way the geography is our little area can't really flood without most of southern NJ and Philadelphia being under water. 

edit: home from work and checked my 2018 records.  Actually, $200 more than yours. For a 600 sqr ft house on a 40x100 lot that on a good day might be worth $160K.

Yep, it's already been explained. 

If you're using one of the "bigs," call a broker and see what they can do. I'd love to have HO as cheap as yours, but OK and wind/hail/tornados prevent that. 

I closed on my house Sept 1st, 2017. State Farm quoted me $2900/yr for an 1800 sq ft house, in an avg neighborhood on an average corner lot. My broker got it through an independent (forget who for $2500/yr), August was time to reup and they were getting close to the State Farm price. 

He found a company to do it for $1996/yr for the same coverage. And I suspect he will to do the same again this coming august. 

volvoclearinghouse said:

Dr. Hess said:

Oh, and for E36 M3s and grins, read the fine print on what they cover for contents.  Things like "we'll cover $10,000 for lost firearms.  At a maximum of $20 each."

 

Note to self:  Buy 500 Saturday Night Specials.

If such a thing existed, it would run you $200 today.  Anything that goes BANG is two bills.

Some states consider pellet/bb guns "firearms." Seriously.  Go buy every cheap ass bb gun on Craigslist.

In reply to volvoclearinghouse :

That's pretty much an exact replay of a conversation I had with our then-insurer a few years ago. The only way out of that is usually to change insurance companies.

Did I miss it, or has anyone brought up the liability aspect of insurance that could be the cost driver?

Even if you haven’t filed any claims,  a higher claim rate in you area could be contributing to the increase in your rates. 

We live in a forested rural area outside of fire protection, and heat with wood. I'd kill for house insurance that cheap.

My previous house $498 a year 

11 miles away now $3,756 a year