My wife and I paid off the mortgage, want to ramp up savings — but home insurance is now $7.2K. Can we go without it?
While they don't have any debt, they're trying to save as much as possible for an early retirement. So far, they have about $250,000 stashed away in retirement savings and investments. But a wrench was thrown into their retirement plans when they found out their home insurance will increase from $3,400 to $7,200 next year.
Don't miss
Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast)
Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now
Shop Top Mortgage Rates
Personalized rates in minutes
A quicker path to financial freedom
Your Path to Homeownership
Scott and Lisa can afford to make the increased payments, but it means diverting their extra money from savings to insurance. And since they've already paid off their mortgage, they're no longer required by their mortgage lender to carry home insurance.
With this in mind, the couple can't help but wonder: should they keep paying for it, or does the crazy idea of living in a house without home insurance make some sense? While Lisa wants to shop around for a better rate, Scott is worried that the options in Colorado are limited and wonders if it makes more sense to self-insure.
The state of home insurance in Colordo
Over the past three years, American homeowners have seen their insurance premiums increase by an average of 24%, according to a report from the Consumer Federation of America.
From 2021 to 2024, annual premiums increased by an average of $648, according to the report, which means homeowners were paying, on average, $3,303 annually by 2024. While the rate differs from state to state, premiums increased in 95% of ZIP codes, with one-third of ZIP codes seeing an increase of more than 30%.
In Colorado, premiums are expected to jump by 11% in 2025, increasing rates from an average of $5,984 to $6,630, according to Insurify. Across the country, premiums will increase by 8% to a national average of $3,520.
The culprit? Insurify says severe weather is 'putting pressure' on insurers to raise rates.
'Western wildfires, Southern hurricanes, and Midwestern hail have continued to increase in intensity and frequency, leading to larger losses and higher claim payouts,' says Insurify.
In Colorado, homes are at particular risk of wildfire damage. While the 2022 Marshall Fire was the most destructive, the 10 largest fires in the state's history have all occurred since 2002, according to the Western Fire Chiefs Association.
That has helped in making insurance premiums less affordable — and, in disaster-prone areas, homeowners may not be able to get coverage at all. Nearly one in seven homes in the U.S. is uninsured, according to a recent study, which translates to 11.3 million owner-occupied homes throughout the country.
Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free.
To insure or self-insure
Scott and Lisa wouldn't be alone in their predicament, as 44% of American policyholders find home insurance harder to afford than in previous years, according to a ValuePenguin survey.
To save money, 58% of survey respondents said they've shopped around for a better home insurance premium, with those who successfully switched providers saving an average of $1,034 yearly. In addition, 56% of respondents said they requested a discount from their insurance provider, and those who got one saved an average of $781 annually.
However, 34% said they saved money by downgrading or reducing their coverage. Furthermore, 24% said they don't believe home insurance is worth the cost, while 31% have considered self-insuring.
Scott and Lisa will have to consider how forgoing home insurance could impact their financial plan. If some unfortunate event were to destroy their home, would they have the cash to rebuild it, and how would that impact their retirement savings?
Say they lost their home and had to rent. Would the cost of renting a place — which averages $1,977 a month for a two-bedroom apartment in Colorado — outpace their current housing costs, including property tax and the higher insurance rate? Would renting eat into their retirement savings?
These are things that Scott and Lisa should consider before making a decision.
What are their options?
For the argument of keeping their home insurance, Scott and Lisa may want to consider shopping around to see what their options are. An independent agent, who sells policies from multiple insurers, could provide them with a comparison of rates.
If they've been loyal to the same insurer for years, they could also try to negotiate a better price or reduce their rate by bundling home and auto insurance.
If those options don't work, they could also consider raising their deductible (the amount you have to pay upfront if you make a claim). A higher deductible will lower their premium, but they'll want to make sure they have enough cash in an emergency fund to cover that higher deductible.
Scott and Lisa could also talk to their insurer about discounts for making their home more resilient to natural disasters. This could include reinforcing their roof or installing storm shutters.
Those retrofits come with an upfront cost, though it's a cost that may be worth it if it saves their home during a natural disaster. Scott and Lisa should talk to their insurer first about what it recommends and how much they could save.
Another reason for a high insurance rate? If Scott and Lisa have poor credit, then they may have a low credit-based insurance score, which some insurers use to determine your premium. While improving your credit has many benefits, one of those benefits could be improving your credit-based insurance score, which could help lower your premium.
As a last resort (for those who've been denied coverage), Scott and Lisa could choose to go through their state's Fair Access to Insurance Requirements plan.
'FAIR plans offer coverage even in areas where insurance companies have decided not to sell policies,' according to the Consumer Financial Protection Bureau. 'Through FAIR plans, everyone can have a basic level of protection from catastrophes. However, it typically costs more than a standard policy.'
Since Scott and Lisa don't have millions stashed away for retirement and can't afford to rebuild their home from scratch, it may be in their best interest to shop around and find out what their options are before canceling their home insurance.
What to read next
Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it
Here are 5 simple ways to grow rich with real estate if you don't want to play landlord. And you can even start with as little as $10
Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead
Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
29 minutes ago
- Yahoo
‘Things are getting tougher': I'm struggling with $145,000 in debt. Should I refinance my 3.5% mortgage?
I'm in my upper 40s and have $300,000 in my 401(k). I also have 23 years on my mortgage — $254,000 with a 3.25% interest rate — and $400,000 in equity. Things are getting tougher each month with expenses, and I find myself in $145,000 debt between low-rate credit cards (15%) and a 8% HELOC. Medicare will test using AI to help decide whether patients get coverage — which could delay or deny care, critics warn 'I'm tired of corporate America': My wife and I have $1.65 million. I'm 61. Can I retire already? 'She lives alone': My mother-in-law, 86, gets $1,300 in Social Security. Is that enough to live on? 'Stagflation is coming to the U.S.,' says this economist. Here's what it means for the dollar, bonds and stocks. Shop Top Mortgage Rates Personalized rates in minutes A quicker path to financial freedom Your Path to Homeownership If you were in my shoes, would you rather refinance at a 6.7% mortgage rate and pay off the credit-card debt and home-equity loan, get a HELOC or downsize your home? Forties Don't miss: 'He claims to be a nihilist': I told my friend to sell his Tesla shares. He did not appreciate my advice. Was I wrong? You have a few poisoned chalices to choose from. Given that you are paying 3.5% on a $254,000 mortgage, I assume your monthly payment is around $1,100 a month. Only two options you outline allow you to keep your current home. An ideal third option would be getting rid of your credit-card debt at all costs by slashing expenses. However, if your goal is to get rid of this $145,000 debt entirely and get back into the black, downsizing might be the lesser of three evils; the other two being refinancing your mortgage or taking out an 8% HELOC to cover that credit-card debt. Downsizing would be humbling, but that's not always a bad thing, especially if you preserve your 401(k). It also allows you to take a long, hard look at your finances and figure out why you got into $145,000 debt, not to punish yourself, but in order to prevent it from happening again. By downsizing, you would be taking on a higher mortgage rate — around 6.7% — but hopefully for a much smaller amount. You would not increase your monthly expenses, allowing yourself to save and invest money and be free of your unsecured debt. Selling your house and releasing that $400,000 in equity, paying off the $145,000 in combined debt, and buying a smaller house for $500,000 at a 30-year rate of 6.7% interest with the remainder of your cash, would leave you with a $1,500 monthly payment. The downsides are obvious: You have the potential emotional gut punch of trading down, you don't have such a valuable asset and you pay more interest over the lifetime of the loan. The upside: Your life becomes more manageable on a month-to-month basis. And refinancing? Brace yourself for a numbers salad. These are blunt back-of-the-napkin calculations, excluding home insurance and other costs, to show you the difference in your monthly payments under each scenario, and give you an idea of how much interest you would pay with each one. a) Refinancing your existing mortgage to add that $145,000 in debt — plus $5,000 in attorney fees, etc. — would give you a $2,600 monthly payment at a 30-year mortgage rate of 6.7%. That does not seem like a viable solution for you. b) Converting your debts to a 20-year HELOC at 8%, would give you a $1,300 monthly payment in addition to your existing mortgage payment. So your monthly payment would, in total, jump to $2,400. Is that lower than what you are paying now? Again, it does not seem viable. Frankly, none of these rough refinancing estimates sound like attractive solutions for you, but they give you an idea of your monthly payments, your interest payments and keeping your current home versus giving it up for a smaller house. Some context on the kind of interest you'd pay with your three options: 1) With the downsizing option, you pay roughly $321,600 in interest over 30 years but could aim to pay off the mortgage early. 2) By refinancing at 6.7%, you pay $526,560 in interest over 30 years. 3) With a $145,000 home-equity line of credit, or HELOC, you would pay $146,360 on your loan in interest over 20 years. Adding the roughly $144,000 interest you're paying on your existing 30-year mortgage at 3.5%, you'd be paying total interest of $290,360. If you refinanced your mortgage debt or took out a HELOC, would either of those options reduce your current monthly debt payments enough to make it worth your while? If not, are you willing to downsize to a smaller home to pay the debt and have lower monthly costs? If you are unsure, cut your expenses and live like a monk to pay your debt. Don't miss: 'It might be another Apple or Microsoft': My wife invested $100K in one stock and it exploded 1,500%. Do we sell? My therapist said he was in-network. He's not. Am I obliged to pay out-of-network rates for all prior sessions? 'I have never been asked for money before': My friend wants to borrow $1,600 to pay her rent. Do I say yes? 'I feel shaken': A man offered $50 to powerwash my patio. He would not take 'no' for an answer. My late husband's employer is forcing me to take 10% 401(k) distributions. Help! Millions of student-loan borrowers have no idea how much they're supposed to pay 'I feel shaken': A man offered to powerwash my patio for $50. He would not take no for an answer. Sign in to access your portfolio
Yahoo
29 minutes ago
- Yahoo
Bessent says new Fed chair should be someone who can examine organization, Nikkei reports
TOKYO (Reuters) -U.S. Treasury Secretary Scott Bessent said the new Federal Reserve chair should be someone "who can examine the whole organization" as the Fed's mission has included so many things outside of monetary policy and has put its independence at risk, Japan's Nikkei newspaper reported. "It's someone who has to have the confidence of the markets, the ability to analyze complex economic data," Bessent told the Nikkei in an interview, when asked about the qualities the new Fed chair should possess. "And it's also someone who wants to be, I think, very attuned to forward thinking, as opposed to relying on historical data," Bessent was quoted as saying in the interview, which was conducted in Washington on August 7 and published on Monday. A source has told Reuters that Bessent is leading a search for a successor to Fed Chair Jerome Powell, with an expanded list that includes a longtime economic consultant and a past regional Fed president. Sign in to access your portfolio
Wall Street Journal
31 minutes ago
- Wall Street Journal
Activist Investor to Push Avantor to Sell Itself
Activist investor Engine Capital has built a stake in Avantor AVTR 1.05%increase; green up pointing triangle and plans to push the life-sciences company to sell itself or make other changes, according to people familiar with the matter. The investment firm could reveal its roughly 3% stake in Avantor on Monday, the people said.
