What Happens If Insurance Fails to Protect?
“Insurance: an arrangement by which one has a guarantee of compensation for a specified loss or damage in exchange for the payment of a premium.” We think of insurance as the way we are protected in the event our houses suffer damage from weather, fire, vandalism, or unexpected occurrences, like falling branches or trees. But what if we are not? How does that change our entire perception of home ownership?
Rising Insurance Costs and Limited Affordability
Weather-related claims against insurance companies for storms and fires have increased so dramatically that insurability, deductibles, and premiums are all on the table. The cost of insuring a property may now be so prohibitive that people on limited or fixed incomes may no longer be able to afford their property. The federal government’s push for down payment assistance, lowering interest rates, and increasing home starts may all be for naught if people cannot afford the insurance against the property. Seniors with reverse mortgages whose only expense is real estate taxes and insurance may find that insurance alone has priced them out of their property.
Unexpected Changes in Policy Terms
A client recently found out, when making a claim for roof damage, that the renewal of his homeowner’s policy last year changed the deductible without clearly stating that as the case. As with other contracts that are based on a continuance of service, since he did not opt out of the policy because of the change in terms, he accepted them. In this instance, given that the total damage was $15,000, the increase of his deductible to $3,000 made the coverage still better than self-insuring.
Regional Insurance Challenges
Right now, the cost of insuring the average U.S. home has increased nearly 38 percent since 2019, although certain areas of the country have been hit harder than others. A five-fold leap was seen in a fire-ravaged area of California. Some states, such as Florida, Illinois, Indiana, Ohio, and Louisiana, have had to rely on the non-profit alternative of Citizens Property Insurance, which is taxpayer-backed.
Tips for Lowering Insurance Costs
Advice on how to lower insurance costs includes bundling, improving your credit score, checking with group coverage through employers or professional organizations, improving security features on the home, or making the home more disaster-resistant. Of course, looking at the deductible voluntarily rather than waiting for your insurance company to sneak in a change is a good alternative.
Surveillance by Insurers
George Orwell would not be surprised at the spying that some insurance companies have taken to, such as the use of drones to determine whether customers’ homes are at risk because of nearby trees, aged or mossy roofs, or undeclared backyard amenities such as over-ground pools or trampolines.
Reverse Mortgages and Insurance Warnings
We may need to accept that allowing acceptance of reverse mortgages will need to come with greater warnings. While real estate tax payments required under such mortgages may also increase, there at least is a possibility that Senior Exemptions and Senior Freezes keep those costs in line. There is no such protection for insurance unless the state decides to address the increase in premiums. But then that begs the question: “Will insurers stay in a state that limits their ability to cover their costs and make a profit?”
Outdated Insurance Estimates and Their Impact on Mortgage Costs
When mortgage companies estimate the costs for a new mortgage, most lenders are basing the cost of insurance on old information. While that will change the actual costs on the Closing Disclosure, it may be late if the lawyers are dealing with a post-closing possession agreement based on the initial PITI (Principle, Interest, Taxes and Insurance) rate and not the buyer’s actual costs. It may cause a serious problem for negotiating those agreements.
A New Reality for Homeowners
We may have to accept that there are certain areas in which homes should not be built. Homeowners are certainly going to need to look at insurance very differently as weather and fire instances change the landscape for insurers.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords, and commercial and investment property owners. For more information, schedule a consultation today.
