Updated: May 22, 2024
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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.
How Climate Change Impacts Our Lives
Below are a few statistics showing how the effects of climate change are cropping up in daily life.
Climate change-related disasters have tripled in the last 30 years.
200 million people are bound to be displaced by rising sea levels by 2100.
Extreme weather in 2020 resulted in $105 billion in insured losses.
The US lost $133 billion in national catastrophe losses in 2020.
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.
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.
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.
Housing instability
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.
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.
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.
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.
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.
Home insurance covers your personal property. Create a detailed list of your belongings and their value to help make filing a potential claim easier.
Figure out how much liability insurance you need. While the minimum limit is $100,000, MoneyGeek recommends having at least $300,000 or more.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A variety of resources can help homeowners get a better grasp on climate change and learn how to protect themselves and their homes.
About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.
