Homeowner’s Insurance Premiums are Surging in These Five States

American homeowners, especially older ones, are being crushed by record increases in homeowners insurance premiums.

Money.com reports these five states saw the largest increase in premiums from May 2021 to May 2023.

  1. Florida: 68% ($1,127 to $1,896)
  2. New Mexico: 47% ($855 to $1,255)
  3. Colorado: 46% ($1,390 to $2,031)
  4. Idaho: 46% ($552 to $804)
  5. Texas: 46% ($1,471 to $2,141)

The spike in premiums is attributed to a perfect storm of a spike in natural disasters, record insurance losses, and higher construction prices.

 

Natural disasters such as wildfires have long-lasting impacts. For example, in the wake of New Mexico’s most destructive wildfires insurers began hiking homeowners insurance premiums. The same can be said for Colorado, Idaho, and California. In the wake of the disastrous and deadly Maui Fire island residents will soon face the same challenge.

 

As a result of the surging cost of premiums, many older homeowners without a mortgage on their home have chosen to forego homeowners insurance altogether. The Insurance Information Institute reports that 5% more homeowners have not purchased homeowners insurance than just two years ago.

 

Such homeowners are very likely house-rich but cash-poor. Even worse, their greatest source of wealth is now at risk of being wiped out. One disaster could push an older homeowner into complete financial ruin or possible homelessness.

 

Reverse mortgage professionals who originate in states with marked premium increases should reach out to their local property and casualty insurance agents. Ask if they’ve seen an increase in homeowners insurance policy cancelations. If the agent has noted an increase of clients opting out of insuring their home you can explain that reverse mortgage could provide the means needed to purchase a policy and protect what’s likely their largest asset.

 

Working with an agent

While the insurance agent cannot divulge the identity of homeowners who’ve canceled their policy, they can make contact and recommend the homeowners arrange a meeting to learn how a reverse mortgage could help get them insured again.

 

This is a potential win-win-win scenario. The homeowner wins by protecting their home. The insurance agent wins back a client. The originator wins a sale but most importantly, helps eliminate the risk of a homeowner losing their home to a disaster or fire.

How a HECM could save uninsured homeowners from disaster

uninsured homeowners reverse mortgage


The casino is a suitable place to roll the dice and take your chances- win or lose. However, gambling with the security of your largest asset and risking the roof over your head is not.

Survey reveals more homeowners are uninsured

The Insurance Information Institute reports that 5% more homeowners have not purchased homeowners insurance than just two years ago. That’s not surprising considering skyrocketing premiums in several states, most notably California and Florida.

Are most of these homeowners well off with substantial assets to self-insure their homes? Not necessarily. The Institute’s survey showed that half of those who chose to forego insurance on their home have an annual income below $40,000. While wealthy individuals may have the ability to self-insure, most Americans pool their risk with an insurance company that has the financial capacity to absorb the expense of repairing or rebuilding a home.

A risky gamble

As we know, if you have a mortgage on your home you are required to carry a homeowners insurance policy. The lender must protect the collateral that secures the loan. In a recent column in TheMessenger.com David Stevens, a former head of the Federal Housing Administration and the Mortgage Bankers Association said the Insurance Information Institute ‘survey suggests many of these homeowners may be retirees with a paid-off home who are living on a fixed income.

The role of inflation

Inflation is…

[read more] likely influencing the decision for these homeowners to forgo homeowners insurance. Stevens said, “For some people who are living on a fixed income, who have seen the prices of necessities like food and energy go up significantly in the last two years, it’s one they might have to make, however reluctantly”.

Insurify, an online insurance marketplace, projects the average cost of home insurance will be $1,784 this year, 17% more than in 2021. Residents of some states are getting charged more than three times that, it said.

Homeowners living on a fixed income who cannot afford homeowners insurance are also at risk of falling behind on their property taxes. Stevens noted, “As long as you don’t have a mortgage on your house, you won’t get kicked out if you don’t pay for home insurance, but you will get kicked out if you don’t pay your property taxes”.

How a HECM can save the home

How could a reverse mortgage literally help save the home these at-risk individuals live in? Let’s do the math. Let’s say a couple has a home worth $300,000 that’s been fully paid off but they cannot afford homeowners insurance. Should they lose their home to a natural disaster or fire they could easily find themselves homeless not having the money to rebuild. However, utilizing a reverse mortgage this couple could take out an annual withdrawal from a Home Equity Conversion Mortgage’s available credit line (or principal limit) to pay the annual premiums.

This strategy would give them peace of mind and most importantly protect them from becoming permanently unhoused. Of course, the reverse mortgage’s initial closing costs, FHA insurance premiums, and accrued interest would add to the loan’s balance but they’ve succeeded in protecting what is likely their largest asset and may help ensure the home remains for their heirs to inherit.

“At lower income levels, homeowners’ insurance may be perceived as a discretionary purchase,” the Insurance Information Institute said in a report about its survey. “Weather does not discriminate by income, and low-income homeowners remain at risk… Logic would suggest that only a small proportion of low-income homeowners could withstand the total loss of their home from an unforeseen weather event without insurance coverage”, said Robert Dietz, chief economist at the National Association of Home Builders.

Conclusion

If you originate reverse mortgages in Florida, California, or any state where homeowners insurance premiums have skyrocketed you may want to consider marketing to this at-risk group. After all, a reverse mortgage could literally save the roof over their head.

Resources:
More Homeowners ‘Go Bare’ As Property Insurance Gets Pricier and Harder to Get Pricier and Harder to Find

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Moral Hazard?

Moral Hazard? One definition is the lack of incentive to guard against risk because one is protected from the consequences while the risk rests on another party. Is that what we have with reverse mortgage borrowers who have defaulted? Non-payment of taxes and insurance has been an issue. A look at what real estate columnist had to say recently.

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