Buying a Home in These Locations Could Raise Your Insurance Costs – The Motley Fool

Buying a Home in These Locations Could Raise Your Insurance Costs – The Motley Fool

Buying a Home in These Locations Could Raise Your Insurance Costs – The Motley Fool

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by Christy Bieber | Published on Nov. 14, 2021
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Some consumers can face higher premium costs because of where they choose to reside.
Check out The Ascent's best homeowners insurances for 2021
Homeowners insurance is a crucial form of asset protection, but getting the right coverage can be costly. That's especially true for property owners who live in certain locations where insurance premiums tend to be even higher than normal.
For those searching for a home who want to keep insurance costs as reasonable as they can, it's important to pay attention to where they purchase their property. Steering clear of these three locations is key to avoid having to buy more expensive insurance coverage.
Standard homeowners insurance almost always excludes damage resulting from floods. As a result, homeowners who purchase properties in a flood zone will need to purchase standalone flood insurance coverage. This can come from the National Flood Insurance Program managed by the Federal Emergency Management Agency (FEMA) or from a limited number of private insurers.
Buying a separate flood insurance policy can add hundreds or even thousands of dollars in extra premium costs to an annual home insurance bill. It's vital, though, both because lenders require it and otherwise a home would be unprotected from a flood. The property owner could get stuck paying out-of-pocket for all of the damages incurred due to rising waters.
In most parts of the country, damage from wildfires is covered by standard home insurance. However, insurers price policies based on risk. And if the insurance company believes a home is more likely to be damaged in a wildfire, premiums will be more expensive as a result.
In some very high-risk areas, wildfire coverage is actually excluded from a standard homeowners insurance policy. In those circumstances, property owners will need to purchase standalone protection, just as people purchase separate flood insurance.
Some private insurers may offer specialized wildfire policies, or property owners can look into the FAIR (Fair Access to Insurance Requirements) Plan. The plan can offer insurance on high-risk properties that standard insurers may not want to cover. Paying extra premiums for a separate wildfire plan can be very expensive, though, even when using a FAIR plan to get covered.
Finally, hurricane-prone areas also present a greater risk to home insurance companies. As a result, most home insurance providers charge higher premiums to provide coverage for houses located in areas where hurricanes tend to occur.
Hurricanes can also cause both flood damage and wind damage. This means a homeowner will likely be in a position where flood insurance is needed. Plus, in high-risk areas, wind damage may also be excluded from standard policies along with floods. If so, the property owner may need to purchase extra protection for wind-related issues as well. While there's no such thing as hurricane insurance, both flood and wind coverage are expensive and essential add-ons homeowners must ensure they purchase if they're at risk.
The bottom line is, homeowners need to know the level of risk they are taking on when they buy a particular property. The more likely a home is to sustain serious damage, the greater their insurance costs will be. This is because insurance companies know they'll have an increased chance of having to pay out. For those who want to keep home insurance costs as affordable as possible, these issues need to be considered when deciding on the perfect place to call home.
No matter where you live, insuring your home is critical to protecting your finances in the event of an unexpected incident. Whether it's a natural disaster, an accident, a break-in or something that causes damage to your property, you want to know you have the right homeowners insurance coverage for your situation.
Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
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