Some Americans are choosing to go without home insurance as the cost of premiums continues to rise, according to The Wall Street Journal.
Over the past three years, many people who have paid off their mortgage or inherited a home have opted out of insurance due to the high price, Amy Bach, the executive director at United Policyholders, told the WSJ. The national average of home insurance for a $250,000 house has increased 20% since 2022 to $1,428 a year. (RELATED: Despite Pouring Billions Into The Crisis, California Continues To Battle Surging Homelessness. Here’s Why)
“It would probably be financially devastating if I lost my house, but I have enough money in savings to move into a condo in that event,” Larry Farinholt, owner of a 1,100-square-foot home in Los Angeles, told the WSJ. Farinholt has not had home insurance in more than 25 years and says he has saved $50,000.
Most mortgage lenders require those who wish to borrow to obtain home insurance, according to the WSJ. Of U.S. homeowners, 12% do not purchase insurance, with about half of those who do not having an annual household income of less than $40,000.
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“It is a risky proposition to go without home insurance, and you need to fully understand the financial consequences if you lose your home,” Noah Damsky, a financial adviser in Los Angeles, told the WSJ.
The average for a 30-year fixed-rate mortgage has continued to surge to its highest point since 2001, reaching 7.23% last week, up from 7.09% the week before, according to mortgage giant Freddie Mac. Home sales are struggling, with June seeing only 4,160,000 sales, as opposed to the trend of around 6 million homes being sold per month in 2021.
Farmers Insurance put a cap on the number of people it can cover for property and casualty insurance in California, with State Farm and Allstate both announcing they would not accept any new applications in the state, pointing to costs outpacing inflation, growing catastrophe exposure and a difficult reinsurance market, according to Fortune. Farmers Insurance and AAA made similar moves in Florida due to risk management and a challenging market.
Inflation is placing upward pressure on home prices and insurance premiums as it remains elevated at 3.2% for June, up from 3.0% in July but down from a high of 9.1% in June 2022. In response to high inflation, the Federal Reserve has raised rates to a range of 5.25% and 5.50%, the highest since 2001.
Fed Chair Jerome Powell signaled more interest rate hikes could be on the horizon while inflation remains above the Fed’s 2% target and economic growth continues to exceed expectations.
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