From wildfires in the West to hurricanes in the South, natural disasters have been grabbing headlines lately — and emptying pocketbooks, especially for those whose homes were not covered by a homeowners insurance policy or who had inadequate coverage under that policy.

Homeowners insurance covers a wide range of risks and liabilities that could impact your property. According to a survey from the Insurance Information Institute (III), approximately 88% of homeowners in the United States have homeowners insurance, meaning around 12% of homeowners choose to go without it. Of those without insurance, 20% have household incomes of less than $40,000 per year, suggesting that homeowners’ insurance “may be perceived as a discretionary purchase,” according to the III report.

There’s no getting around the fact that homeowners insurance is getting pricier, particularly in states like California and Florida, which have recently experienced fires, floods, earthquakes, mudslides and hurricanes. But they’re not alone. From 2008 to the present, homeowners insurance prices across the United States have increased by 74%.

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Understanding the Risk

The International Disaster Database of the Centre for Research on the Epidemiology of Disasters tracks where natural disasters occur, what types of events they are, their human and economic impacts and how these trends change over time. These researchers have noted an increase during the past 20 years from 100 disasters per year in the 1970s to around 400 events per year worldwide.

A rising number of disaster events are causing carriers to raise rates or, in some cases, not renew policies. In 2023, a historic year of billion-dollar weather and climate disasters in the United States, homeowners paid an average of 12% more for premiums and in 2024 a 6.9% increase in the first half of the year, according to the business analytics firm S&P Global Market Intelligence. Historically, homeowners insurance bills have risen only about 5% a year, says S&P.

What this means for new homebuyers: If you’re new to an area or buying “sight unseen,” you’ll want to know what you’re getting into. Starting in 2024, Zillow added “climate risk” to new home listings in five major categories — flood, wildfire, wind, heat, and air quality. Across all new listings of existing homes nationwide in August 2024, Zillow found more than half (55.5%) at a major risk of extreme heat, followed by 33% with a major risk of extreme wind exposure, 16.7% at major wildfire risk, 13% with major air quality risk and 12.8% with major risk of flooding.

These percentages are higher than those from August 2019 data, says Zillow.

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Understanding Your Homeowners Policy

Buying a home is often the largest purchase a consumer makes, and protecting that investment is essential. If you financed your home and have less than 20% equity, your lender will likely require homeowners insurance and may require a "mortgagee clause," ensuring payment to the lender in case of loss or claim.

Insurance policies will generally cover the cost of rebuilding your house if it’s irreparably damaged by certain acts of nature, like wildfire or lightning. However, damage from floods, earthquakes, hurricanes or windstorms may not be covered, so it pays to read your policy carefully, check the climate risk ratings at Zillow for homes in your area, and ask your insurance agent questions​​ if you are unsure of the coverage being offered.

If you need more coverage, you can often add other endorsements to your basic homeowners policy depending on your lender’s requirements and your own preferences. Of course, options, add-ons, and separate coverages will increase the premium.

How to Shop Around for Homeowners Insurance

Many homebuyers will start their search for insurers through local agents or by using sites like Trusted Choice, which is affiliated with numerous companies. Also, some state insurance departments publish rate comparisons. Throughout this process, you’ll be able to work with insurance agents to customize the coverage to fit your needs.

Next, gather the necessary information for the application and apply for the policy. Review and compare offers, considering coverage, premiums, and customer service. Once you've selected a provider, follow their instructions to finalize the purchase. Pay the premium and obtain the policy documents.

Finally, you’ll need to periodically review your insurance coverage to ensure it still meets your needs. Make adjustments as required, especially when significant life events occur. Remember, it's always beneficial to consult with an insurance professional who can guide you through the process and answer any questions you may have.

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Why Some Claims Are Denied

There’s been recent coverage of homeowner claims being denied after natural disasters. This outcome varies by carrier and location. For instance, it might sound unsettling that Citizens Property Insurance denied 77% of homeowners' claims from Hurricane Debby, according to the Allbritton Journalism Institute.

However, according to Citizens, a state-backed property insurance company, those denied claims were for flood damage, something specifically excluded from its policies. In Florida, most homeowners must purchase separate coverage for flood damage to their home through the National Flood Insurance Program or a private insurer. Similarly, in California, recent wildfires left many hills without vegetation and subsequent rain storms caused severe flooding and mudslides that destroyed many homes and would not be covered by standard flood insurance.

These examples illustrate why it’s important to know your risks and make sure your policy is reflective of those. In some cases, you’ll need to pay extra to secure the coverage you need but it can be a much smaller price to pay in the face of losing your entire investment.

We’re Here to Help

Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AAFMAA Mortgage Services LLC (AMS) Military Mortgage Advisor, a licensed mortgage loan originator, will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.

Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!