Navigating Climate Change and Insurance as a Homeowner
Climate change is predicted to alter the course of history over the next century, and homeowners are already feeling the effects. As a result of rising temperatures and environmental variance, homeowners may face increased insurance and real estate prices.
Learn more about how climate change impacts homeowners — and how you can evaluate the strength of your properties, mitigate threats, find the most affordable home insurance and ensure your financial security.
Impacts of Climate Change on Homeowners and Insurance
The effects of climate change have been felt on people throughout the world — and homeowners are no exception. From rising temperatures to increased home insurance premiums, homeowners are confronted with a shifting reality regarding property considerations. Rising temperatures will increase the use of air conditioners and affect utility bills, while heat waves and extended droughts restrict water usage and boost the risk of wildfires. The increased risk of natural calamities brought about by climate change is likely to lead homeowners to take new measures to keep their assets protected.
The Devastating Effects
An analysis of real estate transactions in 2019 along the East Coast and Gulf Coast states found that frequent tidal flooding caused by rising sea levels resulted in a $15.9 billion loss in home value appreciation in the past 12 years. What’s more, 93% of cities studied have experienced an increase in extra cooling or air conditioning usage to stay comfortable due to carbon pollution that causes higher temperatures in the atmosphere. Below are a few of the devastating effects of climate change on homeowners.
Home values are decreasing due to frequent tidal flooding
Frequent flooding caused by rising sea levels has been found to reduce home value appreciation.
Higher electrical bills
A warmer environment brought about by climate change has resulted in more usage of heating or cooling devices, which can increase utility bills.
Restricted water use
Water shortages can lead municipalities to ask homeowners to lower their use, which can alter everyday activities, such as watering lawns, washing cars and filling up swimming pools.
Rising Rates of Insurance
As a result of climate change, the annual costs involved with keeping homeowner’s assets protected are rising. The effects of climate change are taking a toll on both the insured and insurers. Insurance payouts averaged $31 billion in the last decade, which is $19 billion higher than the previous decade.
More payouts mean that insurers are likely to increase the cost of insurance to recoup the losses, which can make it unaffordable for some. Poe Financial, which was once Florida’s fourth largest insurance provider, went bankrupt after Hurricane Katrina. As a result of climate change, some insurers are refusing to provide coverage at all to homeowners living in areas prone to climatic disasters.
Limited homeowners insurance coverage and declined renewals
Insurers in areas that are prone to climatic events are limiting coverage or declining renewals altogether. In wildfire-prone areas like California or low-lying beach communities like Miami, insurers have already begun to decline coverage renewal or offer limited coverage.
Increased insurance premiums
Insurers are mitigating the risk of climate change by raising home insurance premiums, especially in areas highly susceptible to wildfires or floods. In a study of 2,496 homeowners, two-thirds reported an increase in home insurance costs as a result of the increase in natural disasters.
Unaffordable and insecure housing can make families even less likely to pay for repairs, leading to a cycle of unpreparedness. Currently, more than 38 million US households already live in housing that is not affordable.
Protecting Your Home: The Importance of Insurance
Insurance rates would need to increase 4.5 times to cover the estimated risk of flooding to residential homes in 2021, according to one study. While climate change is bound to increase home insurance premiums, however, homeowners should not miss out on this crucial form of protection. Not only does insurance prevent financial ruin in case of any accidents or calamities, but it also protects your most important asset: your home.
Dangers of Being Underinsured
Having the minimum amount of coverage may not be enough to protect your finances in case of disaster. A climate change-related calamity can result in the total loss of your home or may ultimately lead you to shell more out of pocket. It can also lead to complications when it comes to rebuilding or finding alternative accommodation after disaster strikes.
- Large-scale financial loss. A wildfire or hurricane that leads to the total loss of a home can make it difficult for a homeowner to ever fully recover financially without proper coverage.
- Building complications. Insufficient coverage may cause rebuilding a home after a total loss to be delayed or completed at a low standard. In the worst cases, a home may not be rebuilt at all.
- Alternative accommodation difficulties. Home insurance covers alternative accommodation in the event of a natural disaster. Low coverage may mean you are unable to find a temporary place to stay.
- Increased loan delinquencies. Significant financial loss can lead homeowners to default on mortgages and ultimately lose the entirety of the home.
How to Know if You Are Properly Insured
Since your home is your most valuable asset, it’s vital to ensure you purchase enough coverage to protect it. However, each home and environment is different, and the right amount of coverage can vary from homeowner to homeowner. Below is a step-by-step guide to help you understand how much home insurance coverage you need.
Identify the cost of rebuilding your home
Knowing how much it will cost to rebuild your home will determine how much coverage you should obtain. Make sure to consider the cost of features that may be hard to replace and the likelihood of disaster in your state.
Determine the cost of personal possessions
Home insurance covers your personal property. Create a detailed list of your belongings and their value to help make filing a potential claim easier.
Decide on your liability insurance
Figure out how much liability insurance you need. While the minimum limit is $100,000, MoneyGeek recommends having at least $300,000 or more.
Plan for temporary living expenses
Planning for your additional living expenses ahead of time will ensure you have enough coverage to pay for temporary lodgings in the event of a disaster.
Make a final estimate
After calculating the possible expenses, you may be facing, see which policies fit your needs. When choosing a policy, be sure to read the fine print and shop around.
Prepare for Risks: Finding the Right Insurance
Your home is your biggest investment — which is why you should plan ahead for the effects of climate change. Having the right amount of home insurance can help you feel at ease in case of a natural disaster. Keep in mind that purchasing home insurance doesn’t have to be expensive, and you may qualify for discounts or lower premiums based on your individual situation. Make sure to compare quotes from at least three different insurers to find the cheapest rate.
Factors to Consider Before Buying Insurance
As the effects of climate change are steadily becoming more noticeable, shopping for homeowners insurance must be done with care. Consider the following factors before purchasing home insurance:
- The amount of dwelling, personal property and liability coverage you need.
- The likelihood that you will need temporary lodgings if you can’t live in your home.
- The type of insurance you need: actual cash value or replacement value coverage.
- The environment you’re in — and if it’s prone to natural disasters.
- Additional coverage you may need.
Types of Coverage
Home insurance typically has three types of coverage: dwelling coverage, liability coverage and personal property coverage. However, if you require protection beyond the most common offerings, additional options can help. Most home insurance policies do not cover natural calamities, which can have devastating financial impacts on homeowners. Being aware of what your policy covers before disaster strikes is an important part of emergency preparedness.
Property insurance is a catch-all term for a series of policies that can cover your physical assets, such as your home or automobile. A number of other property insurance policies can cover you against certain perils, such as weather-related afflictions caused by climate change. Consider additional policies in addition to your homeowners insurance.
A component within home insurance is hazard insurance, otherwise known as dwelling coverage, which covers the repairs or replacement of your home if it is damaged or considered a total loss. This cannot be purchased as a standalone policy. Perils covered by hazard insurance include explosions, volcanic eruptions, theft, vandalism, fire and more. However, this coverage does not pay for damages incurred through earthquakes, flooding or mold.
Casualty insurance is a broad term that is primarily concerned with losses or injuries caused to third parties. This is already part of a homeowners insurance policy in the form of liability coverage. Having casualty insurance is a necessity for any homeowner — especially those who like to have visitors. If a theft or fire occurs that injures one of your visitors, casualty insurance can financially protect you against their claims.
While typical home insurance policies cover sudden water damage caused by pipes or water heaters, floods caused by natural calamities require a separate policy. Given the record-breaking hurricanes in 2020, homeowners who live in hurricane-prone areas may want to obtain this coverage to help pay for potential damages to their home. Flood insurance is provided only in certain areas. To apply, your community must be registered in the National Flood Insurance Program (NFIP). If it is, you can reach out to your local agent or insurance company to inquire about getting coverage.
Individuals who live in states like California, Alaska, Washington and Oregon face a high risk of earthquake activity and should purchase earthquake insurance, which is typically not covered in your standard home insurance policy. Earthquake coverage covers any damage or losses caused by tectonic activity. The state of California mandates that all insurers offer such coverage, but insurers in other states may have the same requirements.
Lowering the Costs of Homeowners Insurance
Homeowners insurance can be expensive. The average home insurance cost in the United States is $1,979 annually, or $175 per month. Although it is not legally required, most banks require homeowners insurance as a condition of a mortgage. Fortunately, there are ways to lower home insurance costs.
Compare at least three quotes
Insurers charge you differently based on certain risk factors like location and home value, but calculations vary from company to company. Make sure to compare at least three quotes from different insurers to find the cheapest rate.
Try to get discounts
Insurers offer a large number of discounts that are easy to qualify for. For instance, you can get discounts for having a fire or burglar alarm or if you’ve been claims-free or loyal to the insurer for a certain period of time. Ask about your options.
Bundle your insurance
If you also have a car to insure, aim to secure coverage with the same provider. Most providers offer discounts for bundling different types of policies, and you will become more familiar with the ins and outs of your insurer by dealing with the same company in various situations.
Increase your deductible
A deductible is how much you pay out-of-pocket when you need to make a claim. Your deductible can significantly affect your premiums. The higher your deductible is, the lower you pay in premiums and the less coverage you are likely to have.
Climate-Proofing Your Home
Beyond purchasing homeowners insurance, it’s important to take precautionary measures against climatic disasters and climate change in general. Climate-proofing goes beyond simple seasonal preparation. Instead, it focuses on long term adaptation measures that can prove life-saving in case of emergency. From moving electrical items above flood level to clearing brush around your house, there are a variety of actions to consider depending on where you live and the threats you face.
Defensible space is the area created between your home and the greenery around it. Such space can prove vital to slowing or stopping the spread of wildfire and protecting your property from stray sparks, embers or direct flame. Wildfires can cause vast destruction. According to the Center for Biological Diversity, more than 50,000 structures have burned down in the state of California since 2015, while hundreds of thousands of people have been forced to evacuate their homes. If you live in an area that’s prone to wildfires, some actions can help ensure the safety of your home.
- Keep the surrounding area clean. Remove combustible items such as trash and plastic to mitigate the spread of wildfire. In addition, consider relocating garbage and recycling containers and keeping boats, RVs and vehicles away from your home.
- Space plants out. Fire travels with the help of plants. The strategic planning and spacing of your greenery can help slow or reduce wildfires. Clear plants and trees that become excessively dry. Limit greenery within five feet of your home to low-growing plants that are properly watered and well-maintained.
- Use noncombustible materials. Try gravel, pavers, concrete or other fireproof materials in the area around your home. Replace wooden fencing and gates with other resistant materials.
- Maintain your property. Clean your roofs, gutters, decks, porches and stairways and remove overhanging branches and combustible mulch like dead or dying weeds, plants and shrubs. Cut or mow grass to a maximum height of four inches.
An estimated 41 million residents are at risk of flooding from rivers, while 8.6 million people in the US are susceptible to coastal flooding. From leveling your yard to planting flood-friendly greenery, some measures can mitigate the risk of floods. Below are a few ways to get started.
- Seal your home. Make sure to seal all entryways properly. Pay particular attention to doors, windows and crawl spaces. You can even flood-proof upper portions of the home and make them watertight.
- Adjust the landscape. The environment surrounding your home can be used as a way to fight floods. Get plants that prevent flooding and consider digging ditches to lead stormwater away from your home. Use absorbent mulch to manage or reduce flood damage.
- Level your yard. If your yard is sloping, make sure it slopes away from your house. If you are building a new structure, strategically place it on the highest part of the property.
- Check the foundation. Ensure that your home’s foundation is intact and repair cracks, as it can weaken the structure of your home and increase the likelihood of water entering your space.
Tornado-Proofing Your Home
There has not been an observable increase in the number of strong tornadoes in the US, but scientists say tornadoes have become more clustered. Outbreaks of various tornadoes are more common. In 2019, the number of tornadoes in the country reached 1,294 — 548 higher than the previous year. Here are a few ways to minimize your losses and prepare.
- Check your doors and windows. Secure certain fixtures such as doors and windows to your frames and walls. Ensuring they are properly bolted can assure they don’t fly off and let in debris.
- Secure your roof. Your roof is likely to be the first thing that comes off in case of a tornado. Prevent it from tearing off by using hurricane-strength framing clips.
- Get tornado-proof features. Install impact-resistant windows or hurricane shutters. If needed, professionals can assess your home for structural weaknesses and help you to reinforce areas with extra steel.
- Remove potentially dangerous objects. Objects near your home which are not tied or bolted down pose a risk to your home. Store deck furniture away and make sure that larger possessions such as vehicles and boats are kept at a distance.
Adapting Your Home to Climate Change
Aside from preparing for specific disasters, there are a number of ways you can adapt your home to the impacts of climate change. Below are a few strategies to get you started.
- Install solar shading. Solar shading helps keep buildings cool and comfortable by reducing glare and heat gain.
- Raise electrical sockets. If a flood happens, having your electrical sockets in a high place will prevent them from getting damaged.
- Use water-efficient appliances. To reduce your water usage, get appliances that are water-efficient, such as low-flow showers or low-flush toilets.
- Have tile flooring. Tile flooring can help maximize coolness in the summer. In case it gets too cold, seasonal rugs can be used in the winter.
Managed Retreat and Other Larger Moves
A long-term plan formed between a community and governing body to mitigate climate change is known as a managed retreat. In a retreat, neighborhoods and human development is “moved” to safer areas beyond coastlines, low-lying features or disaster-prone areas. Retreats can let natural areas restore themselves and become natural flood defenses. Generally, such a strategy involves coastal planning, habitat restoration tactics, relocation and buy-back or buy-out programs and greater regulation of the types of development allowed in a certain area.
Expert Insight on the Ways Climate Change Impacts Homeowners
MoneyGeek reached out to experts for their thoughts on the effects of climate change for homeowners. They provided insight into how climate change can affect policies and how homebuyers go about their home selection.
- How will climate change affect how you choose a house? Should it determine where you buy a house? Why or why not?
- What are the implications of climate change on the mortgage market and the future of real estate?
- How will climate change affect the personal finances of homebuyers today?
CEO of KC Property Connection
General Manager, Insurance Products for Better.com
Sustainability Director of The Center for Community Self-Help
Resources for Homeowners Facing Climate Change
A variety of resources can help homeowners get a better grasp on climate change and learn how to protect themselves and their homes.
- Environmental and Energy Study Institute: The Institute examines how climate change is bound to affect real estate, and how it has impacted the market so far given recent hurricanes.
- Insurance Information Institute: The Insurance Information Institute provides background on the economic and insurance risk that earthquakes can bring to homeowners. The guide also reviews how climate change is affecting the home insurance market and how insurers in the industry are working to mitigate threats.
- Global Financial Markets Center: This breakdown from Duke University School of Law talks about the risk that climate change poses to the U.S. mortgage market. It also touches on the numerous climatic disasters that homeowners across America are prone to and what it means for the mortgage market.
- National Aeronautics and Space Administration: Leave it to NASA to offer a deep dive into the effects of climate change on the world and how it’s bound to change how we live. Their resources can provide you with deeper scientific explanations that can give you a better sense of what the world is up against.
- National Fire Protection Association: Homeowners with houses prone to wildfires need to actively learn how to prevent or influence fires. In this resource, the National Fire Protection Association provides a few tips on what to do in and around your house.
- Wharton Risk Management and Decisions Processing Center: This center provides insight from economists like Howard Kunreuther, who are knowledgeable on the role of insurance companies in climate change and the way they handle the aftermath of disaster.
- The Millennium Alliance for Humanity and the Biosphere: This resource breaks down the ways homeowners can take a stand against climate change and get prepared. It also provides information, solicits opinions and offers working groups and access to those committed to ameliorating threats to humanity.
- World Resources Institute: Review some of the long-term strategies to prevent and adapt to climate change with this resource from the World Resources Institute.
About the Author
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