Real-Time Advice: What used to be standard on most home policies now requires supplemental insurance, experts say.
As home insurance premiums skyrocket this year, many insurers are cutting back on what used to be standard coverage.
Damage from wind, hail and sinkholes has been stripped from many basic homeowner policies. Last month, Allstate reduced coverage for roof replacements for new customers in Kansas after doing the same in Oklahoma late last year. The North Carolina Farm Bureau plans to eliminate wind damage coverage for many homes in the state. It follows State Farm, which dropped wind and hail coverage in southern Louisiana last year. "They're just cutting back on the coverage that they offer and raising the premiums so consumers are between a rock and a hard place," says Linda Sherry, director of national priorities at Consumer Action, a consumer advocacy group.
Insurers say most cutbacks have occurred in coastal states where coverage has proven too costly and they need to lessen their exposure to risk. The companies now look more closely at areas where severe weather recently wreaked havoc, and change their coverage accordingly, says Robert Hartwig, president and economist at the Insurance Information Institute. Separately, when insurers don't get state approval to raise premiums on policyholders, some will decide it makes more sense to cover less or to exit that market entirely, he says. When they cut back, they'll often sell the coverage they eliminated as a supplement with a second premium.
To be sure, homeowners can switch insurers if their existing provider scales back on coverage too much. Hartwig says there are now more insurance policies for residents to choose from than before.
Still, weakening coverage comes at an already challenging time for homeowners. Insurance premiums are estimated to rise 5% this year to $1,004 on average, according to the Insurance Information Institute -- and in some cases, deductibles are rising too. In December, State Farm began informing policy holders in Texas with homes insured for at least $100,000 that their deductibles would move from a fixed dollar amount (starting at $500) to at least 1%. On a $300,000 policy, that means a homeowner would have to pay at least $3,000 out of pocket. Company spokesman Gary Stephenson says the intention is "to minimize small or frivolous claims that some [policyholders] might have a tendency to file."
Here are three types of coverage insurers are scaling back.