How to reduce the rising cost of auto and homeowners insurance

The cost of insuring your most expensive assets has skyrocketed. While headline inflation has slowed, insurance costs weigh more heavily on many household budgets.

The average annual rate for homeowners insurance increased by nearly 20% between 2021 and 2023 — and homeowners can expect another 6% increase in 2024, according to Insurify, a virtual insurance agent. That will bring the average policy cost to $2,522 by the end of the year.

Auto insurance premiums have also skyrocketed.

The average cost of car insurance rose 16.5% from August 2023 to August 2024, according to Bureau of Labor Statistics. Bankrate estimates that in September the average cost for full auto insurance coverage is $2,348 per year.

Many factors are contributing to rising home insurance rates, including rising costs for building supplies and repairs, a significant increase in claims disputes and a greater frequency of weather-related events, said Shannon Martin, licensed insurance agent and author of Bankrate.

Extreme weather, higher replacement and repair costs and increased medical expenses after accidents have driven up car insurance rates, experts say.

However, there are ways to mitigate rising premiums. Here are six strategies to consider:

Consider switching to another insurance company. While most people stick with their car or home insurance from year to year, it’s wise to shop around, experts say.

Some 37% of drivers say they will or have already received a quote from a new insurer in response to rising insurance rates, and 27% have or plan to switch insurers, according to new research from Autoinsurance.com.

Shop around for auto and home insurance once a year to make sure the rates you’re paying now are still competitive, experts say. You may also want to compare rates if you have a life change that could affect your rate.

“If you’re moving, getting married or buying a new car, it’s also a good time to shop,” said Maya Afilalo, insurance analyst at Autoinsurance.com.

Although extreme weather events have adversely affected many insurers, companies are at different stages in how they adapt.

“So a company you might be with now that might have a much higher rate than a company that’s already in recovery,” said insurance agent Mike Barrett, who owns Barrett Insurance Agency in St. Louis. Johnsbury, Vermont. “Shopping could actually save you money.”

Compare costs by getting quotes from several insurers before renewing your policy. You can go online or use insurance shopping apps to get quotes from multiple companies at once. Or you might want to talk to an independent insurance agent — this is usually free because they usually get a commission from the insurer for selling you a policy. You can find an agent in your area through Independent Insurance Agents and Brokers of America.

Lower premiums aren’t the only factor to consider. Check out AM Best and Demotech, which assess the financial strength and reliability of insurers.

“What you’re looking for is the financial strength of the carrier, which shows its ability to pay future claims, as well as an understanding of its history of paying claims in the past,” said insurance agent David Carothers, a Florida principal. Risk Partners in Valrico, Florida.

Your deductible is the amount of money you’ll have to pay out of pocket before the insurance company steps in. Increasing your deductible can lower your auto and home insurance premiums.

With auto insurance, for example, “increasing the deductible from $500 to $1,000 can reduce the cost of optional collision insurance and coverage by 15 percent to 20 percent,” said Loretta Worters, vice president at the Insurance Information Institute.

But if you increase your deductible, you need to have enough money in an emergency fund to cover it.

If you’ve been with the same insurance company for several years, you may have made changes that better protect your home from risk—for example, a new roof, hurricane windows, or a security system—since you took out the policy. Updating your coverage to reflect these changes could save you money, experts say.

Dropping coverage on certain items, such as jewelry or artwork, could also lower your homeowners premium.

Dropping collision and/or comprehensive coverage on older cars can also reduce costs. You may want to consider dropping coverage if your car is worth less than 10 times the premium, according to the Insurance Information Institute. But that means you’ll have to pay for any damages out of pocket if you’re in an accident or your car is damaged by weather, theft, or another non-collision event.

“You may be responsible for paying for those damages to other properties that aren’t covered by your insurance company. So you know, there’s some risk and reward there,” said Rod Griffin, senior director at Experian.

That said, experts say that having enough insurance and the right kind of coverage can save you more money in the long run. Saving on premiums can end up being costly if you don’t have the type of insurance you need, such as flood insurance.

Just one inch of water can cause about $25,000 in property damage, according to the Federal Emergency Management Agency. However, most homeowner’s insurance policies specifically exclude flood damage, and few people seek this coverage. On average, about 30% of U.S. homes in areas with the highest flood risk have flood insurance, according to at the University of Pennsylvania’s Wharton Risk Center.

Experts say you may need flood insurance even if you’re not in a high-risk zone.

“A lot of people don’t buy it because their bank doesn’t require it, and all of a sudden a hurricane comes in. They’re not in a flood zone, according to a map, and we have a storm, and there are all kinds of uninsured claims,” ​​said Carothers of Florida. Risk Partners.

One of the most advertised discounts is the coverage bundle. You’ve probably seen a lot of ads about buying home and auto insurance from the same insurer to save money, but experts say that’s not always the case. You can find better rates by using different companies.

“It’s really good to explore both sides — bundling, not bundling — and always talk to your agent before making big changes to your home or expensive changes that you think will save you money,” Bankrate’s Martin said.

Homeowners may receive discounts for going claim-free for a certain period of time or installing features that better protect their home from hazards.

Car insurance discounts range from safe driver and good student discounts to taking defensive driving lessons. There are also senior driver discounts and low mileage discounts for driving fewer miles than average.

Your credit history can also affect your auto and home insurance rates. The higher your credit score, the less you can pay for insurance in states where credit is a rating factor for insurance companies, experts say.

Bad credit can significantly increase your insurance costs. For example, drivers with bad credit for comprehensive insurance pay $4,349 a year compared to drivers with excellent credit who pay $2,033, according to a Stock exchange report.

Work insurance costs into your home or car budget from the start. Pricing policies published early can help you avoid sticker shock at a point where it is more difficult to back out of a purchase.

Also, when buying a home, consider the possibility of extreme weather for a prospective property, which may mean you have a more limited choice of insurers and face higher prices for cover. Some websites like First street and climate control, can give you a projection of the effects of extreme weather on your home by 2050.

“Always put yourself in a stronger position to value your insurance before you get emotionally and financially involved,” Martin said.

— CNBC producer Stephanie Dhue contributed to this story.

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