last year, the average home insurance costs have increased by over 20%, and according to a new report on bigger pockets (https://www.biggerpockets.com/blog/home-insurance-rates-to-increase-another-6-percent), the rate increases are not done yet for Illinois residents. Homeowners insurance rates are set to jump another 10% on average, with many customers seeing 20 to 30% increases again in 2024. Let us dive into what is causing these rate hikes and then give some tips on how to get your rates down.
In Chicagoland, just a few weeks ago, in June 2024, we saw our towns become a tornado alley; severe storms send hail down onto cars and homes alike, ripping off roofs and damaging siding. These increases in natural disasters, paired with rising labor costs and construction materials, have made it harder and harder for major insurers to stay profitable, so they are forced to pass on higher rates to the consumers in our area. Not only are the average rates going way up, but the insurance coverage is going down, and the homeowners are stuck with a higher deductible on top of that.
One of the best pieces of advice we can give is that the best solution is to shop your insurance company and see if the grass is greener elsewhere instead of just accepting the higher rates. However, it is essential to make sure you are comparing apples to apples and not losing coverage. In recent years, the insurance industry has gotten pretty shifty about writing policies that exclude certain things. One example may be fixing dents on the siding of older homes. Some major insurers do not offer coverage for dents in aluminum siding, even when severe weather events cause them. The next thing to compare is your deductible. Many companies, including State Farm, require a minimum of a 1% deductible, which means if your home is worth $600k, your deductible is 6k. My advice would be to talk to your insurance agent before canceling and ask them to see if any differences are causing his rates to be higher than the competitor's, and show the competitor's insurance agents your current insurance policy to ask how it compares.
Other things to ensure are included in your policy, such as that it is a landlord policy and not an owner-occupied policy that covers loss of use and rent in case of a disaster.
Knowing Chicago is in a high-risk area for extreme weather events, home insurance premiums will be higher than in many other states. However, there are a few tactics to keep your rates low compared to other Chicagoland properties.
1. homeowners insurance claims: not only do many home insurance companies charge way more for those who have had past claims, but many flat-out refuse to offer a home insurance policy to someone with more than one claim. Your Claims history, both personally (meaning claims you made at other properties) and the property history (claims made by you or others at the property), can cause higher costs for your insurance at your investment property.
2. Home prices have risen at historic levels since COVID-19 started in 2020. The price you paid for your home is not what the replacement cost would be to rebuild it, so make sure that your insurance agent is giving you coverage based on the price to rebuild the home, not what you bought the home for. Even with rising construction costs, home values are often higher than replacement values.
3. Multi-line discount: Consider working with the same agent for multiple lines of insurance, including auto policies and life insurance; when combined, these will often be major factors in the discounts the insurance provider can give you.
4. Think about upgrades: Some insurance policies will not fully cover your roof if it is over 20 years old, and some home insurance companies will not give you coverage if your roof is over ten years old. Depending on the age of the home, having a licensed professional pull a permit and make upgrades to the roof, electricity, or plumbing can drastically reduce the rate of your homeowner's insurance.
How does Illinois compare to other states around the country? Let us dig into the numbers. You would think the states hit by hurricanes like Florida would top the list, and the wildfires in California would top the list; however, that is not the case here.
The top 10 state increases are, drumroll, please......
10. Nevada has a 9% rate increase, and the leading cause is wildfires in specific areas; the good news for those in Nevada is that the average insurance rate is right around $1300, which we would take in a heartbeat in Chicago.
9. Connecticut has an average rate increase of 9%, but 50% of customers see that rate, which puts the Husky Nation at number 9. Climate change has caused more snow, floods, and hurricanes to hit Connecticut in recent years, raising the rates.
8. Illinois: 10% increase. As discussed earlier, we have seen a lot of hail and tornados this year, causing our rates to spike.
7. North Carolina is our number 7, also with a 10% increase. Oddly, this is not a recent fact, but the fact that while the rest of America was getting pounded with increases, North Carolina has remained stable since 2020. This was the first major rate increase filed since then, and due to construction costs surging and a few hurricanes, of course, the rates went up.
6. South Carolina makes a list at number 6 with an expected 11% increase. With climate change causing more tornados, hurricanes, and floods, South Carolina has gotten hit hard in the last few years. This caused the insurance carriers to request an 11% increase in 2024, increasing one of the higher average insurance prices even higher
5. Montana has the fifth-highest rate increase for 2024, soaring 12 percent due to the increased risk of wildfires due to climate change.
4. Utah enters the race at number 4 on the list, with an increase of 13 percent lead mainly due to wildfires, which have become a bigger problem than ever in the last few years.
3. Michigan has the third-highest insurance premium rate increase. This is primarily due to the rise in sweltering days and days with heavy rainfall.
2. Maine is our number 2 state, with a whopping 19 percent increase. This is due to rising sea levels, which are due to, you guessed it, global warming. The danger of the ocean causing floods has raised the average price from $1322 to $1571, which again is not a terrible rate for other places in the country
1. Number 1: You may have guessed wrong, as it is not California or Florida, but Louisiana tops the list. An increase of 23% has the average insurance rate at $7809 a year; I guess we in Chicago have much to be grateful for. These insurance premium rates are sky-high due to year after year of natural disasters, such as hurricanes and heavy rains. If you build a home by the coast here, ensure it's built high off the ground.
As an investor, what should you do? With increases coming hard over the last few years, here are a few tips for investors
1. Make sure that you give yourself some wiggle room when buying a new property, knowing that the insurance price will rise.
2. when increasing rent on renewals, take into consideration the increases in your insurance and other rising costs like property taxes to make sure that you are able to cover your fixed costs with the rent,
3. Shop your insurance, but also be aware that older policies can often be far superior. Not to mention, many places give discounts for being loyal for more than a few years, so only make the changes when the difference is really worth the effort. Check out our referral partner at https://chicagostyle.
4. Make Cap X repairs. Is your roof near the end of its life? Instead of waiting for a leak to cause damage, get a quote and see if you can save money by getting it replaced with new architectural shingles. This will not only make your home less likely to have costly damage from rain but also lower the price of your insurance. Other improvements that can reduce costs are redoing your plumbing or electricity if they are older than 40 years.
5. Small repairs, such as making sure your fire extinguishers are up to date, trees are trimmed back and not over the roof or power lines, and exit lights are working, may disqualify you from getting cheaper insurance rates when an insurance company sends out their team to inspect the insurance.
I hope this helps you with your insurance and makes your real estate investment even more profitable. If you have any questions about how to manage your real estate portfolio better and be more profitable, please reach out to us.
