Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Homeowners Insurance
Transcript
- Lucas: Luna, have you opened your homeowners insurance renewal notice lately? Luna: Honestly, I try not to look too closely. But I noticed the premium jumped this year. Feels like everything's going up. Lucas: It's not just you. Homeowners insurance premiums have been climbing at two to three times the rate of overall inflation. The latest CPI reading for May came in at 334.0, up about 3.1 percent year-over-year. But insurance costs? In many states, they're up 15 to 20 percent. Luna: That's huge. Why the disconnect? Lucas: A few things. First, reinsurance costs are spiking. Reinsurers — the companies that insure the insurers — took massive catastrophe losses in recent years. Hurricanes, wildfires, hailstorms. They've repriced their contracts, and that cost flows straight down to us. Luna: So we're basically paying for the climate disasters in Florida and California, even if we live in the Midwest. Lucas: Exactly. And it's not just climate. We're in a hard insurance market cycle. That means underwriting standards tighten, and carriers raise rates to rebuild their balance sheets. The Fed's interest rate at 3.63 percent doesn't help insurers much when investment income is still recovering from the low rate era. Luna: Kashkari said just yesterday he expects a rate hike this year. If that happens, does that help or hurt insurers? Lucas: Short term, it's mixed. Higher rates mean insurers earn more on the bonds they hold, which can offset underwriting losses. But it also slows the housing market and the economy, which could reduce demand for new policies. The bigger factor is that the hard market cycle is driven by claims experience, not monetary policy. Luna: So what can we actually do about it? I've heard shopping around every year is the move. Lucas: Absolutely. Loyalty is rarely rewarded in insurance. The quote you get as a new customer is often cheaper than the renewal you get as an existing one. But there's a nuance — you have to compare apples to apples. Coverage limits, deductibles, endorsements. A cheap policy might leave you underinsured when you actually need to rebuild. Luna: Right, because replacement costs have also gone up with inflation. The cost to rebuild a home is way higher than it was five years ago. Lucas: That's the killer. Many policies have a 'replacement cost' provision, but if the limit hasn't been updated, you're on the hook for the difference. Some insurers now offer 'inflation guard' endorsements that automatically adjust your dwelling coverage. That's worth asking about. Luna: I've also heard bundling isn't always the savings it used to be. Lucas: True. Bundling home and auto can save you 5 to 15 percent on paper. But if the bundled price still exceeds two separate policies from different carriers, it's not a deal. You have to run the numbers. And watch out for 'package discounts' that mask a higher base rate. Luna: And raising your deductible — that's a classic move too, right? Lucas: It is. Moving from a $500 to a $1,000 deductible can knock 15 to 25 percent off your premium. Just make sure you have that cash set aside. The whole point of insurance is to avoid financial catastrophe, so you don't want a deductible so high that a claim would be a hardship. Luna: Speaking of avoiding hardship — we've talked a lot on this show about protecting your purchasing power. And one thing that really helps us keep making these episodes without ads is listener support. Lucas: Yeah, and we're grateful for that. If the show helps you think about your money differently, you can support it at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Just a simple way to say thanks. Luna: And it keeps the podcast independent and ad-free. So thanks if you've already chipped in. Now back to the insurance squeeze. Lucas: Another angle — if you're in a state where insurers are pulling out, like California or Florida, your options shrink. Some carriers have stopped writing new policies in high-risk zip codes. That reduces competition, which pushes rates up even faster. Luna: So what happens if you can't find a carrier? The state's insurer of last resort? Lucas: Yes, but those plans are usually more expensive and offer less coverage. They're a safety net, not a solution. The real answer is to make your home less risky. Hardening your roof, installing storm shutters, upgrading plumbing and electrical — these can qualify you for discounts and make you more attractive to insurers. Luna: And a lot of those upgrades also save energy and reduce other costs. It's a multi-win. Lucas: Exactly. And if you've got a mortgage, your lender requires you to have coverage anyway. So you can't just drop it. The only way to fight back is to be an educated consumer. Luna: So to recap: shop around every year, check your coverage limits for inflation, consider raising your deductible, bundle smartly, and invest in home hardening. Lucas: And don't just auto-pay that renewal. Read the notice, compare quotes, and negotiate. You'd be surprised how often a simple phone call to your current carrier can get you a better rate if you mention a competitor's offer. Luna: Alright Lucas, I'm going to pull my renewal notice right after this. Lucas: Smart move. We'll check back in a few months to see if the hard market is softening, but for now, protect your purchasing power one policy at a time.