Why Home Insurance?
Most people spent little time thinking about homeowners insurance until recently. Because premiums are much lower than they are for health and auto insurance - less than $700 per year, on average - they tend to get a policy when they buy their homes, then make few changes through the years. That can be a very expensive mistake.
The importance of having the right homeowners insurance coverage became painfully obvious after four hurricanes battered Florida in 2004 and Katrina destroyed the Gulf Coast in 2005 - the costliest catastrophe in American history. People who skimped on coverage to save a few hundred dollars ended up with tens of thousands of dollars in damages that insurance didn’t cover. Many fought with their insurance companies over their claims for months, while neighbors who chose insurers with better customer service records started rebuilding soon after the disaster. Some who thought they had good insurance suffered from hundreds of thousands of dollars in uninsured losses because they hadn’t updated their coverage through the years or hadn’t bought the right types of insurance. Making small errors in your homeowners insurance can cause giant financial problems.
Even before the storms, insurers were already making it more difficult to get and keep your coverage. After suffering from financial troubles in the early 2000s, homeowners insurance companies started raising rates at a double-digit pace, dropping customers because they made just a few small claims, even if they were legitimately covered under their policies, and leaving some parts of the country entirely.
They started relying more heavily on a semisecret claims database that makes it tough to find any insurer to cover you in the future - and can even make it difficult to sell your home. Insurance regulators received a record number of complaints from people who made just two or three claims for a few hundred dollars within a few years, then were dropped by their insurance company and ended up having to pay three times the premium with a new insurer, costing them much more in extra premiums than they ever received for the claims. That all started before the two costliest years for insurers in history - with seven out of the ten most-expensive hurricanes occurring between August 2004 and October 2005, and damages surpassing $83 billion over that time period.
