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?

Yahoo

2 days ago

Picture this: Scott and Lisa, who are in their 50s, live in Colorado and recently paid off their home. Together they make about $130,000 a year, but since they're now mortgage free, they're using that extra cash to boost their retirement savings.
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.
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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.
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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.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.