Can you afford home insurance when you retire?

Here’s how rising homeowners insurance premiums may impact your retirement plans.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Many people experienced home insurance rate increases of hundreds or even thousands of dollars in 2022. Inflated construction costs were a big factor, but homeowners in disaster-prone states like Florida and California had it even worse than most homeowners. As the changing climate increases the damage from hurricanes and wildfires, the price of home insurance is weighing more heavily on the financial plans of current and future retirees.

“The price of homeowner’s insurance is rising, and rising at a fairly considerable pace in places like Florida, in places like coastal Carolina, in places like Texas, that are popular with retirees,” says Robert Hartwig, professor of risk management and insurance at the University of South Carolina.  

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More than one in five people living in Florida are over 65, where coverage is already expensive or impossible to obtain because of the failures of several insurance companies. While Gov. Ron DeSantis signed legislation in December to stabilize the insurance market, no law can reduce the frequency or severity of extreme weather, and Florida, like other states in risky areas, has done little to stop people from building in vulnerable areas, Hartwig says.

“The reality of it is that the vast majority of the increased exposure to property damage from climatic events is associated with demographics and economics,” he says. Whether in flood- or wildfire-prone areas, people continue to build in harm’s way.

Many retirement plans anticipate that you’ll spend less when you stop working. One challenge of retirement is that you only have a finite amount of money to live on. Owning a home can help stabilize your housing costs, since you don’t have to worry about a landlord hiking your rent. But fluctuating insurance costs can throw those calculations out of whack, and post-retirement sources of income like Social Security may not keep up. For example, homeowners insurance prices increased by 12.1% over the year ending in May, while the latest Social Security cost-of-living adjustment was 8.7%.

What to do about rising home insurance costs

If you’re planning for retirement, you may have to consider how the changing climate could change your insurance costs. A state with a low income tax and affordable cost-of-living may not be as attractive when you weigh climate risk.

“It has to be a factor when someone approaches retirement and thinks about their post-retirement budget,” Hartwig says. 

Tom Balcom, a certified financial planner and founder of 1650 Wealth Management, says several of his clients have spoken to him about the high cost of insurance, with some contemplating self-insurance — saving enough money to pay for any damage to their homes themselves.

“One of my clients has basically had her insurance double over the past five years and is weighing the risk of not renewing her policy,” Balcom says. 

But he warned against self-insuring, especially in Florida where hurricanes are a regular and hard-to-measure risk. You may have enough money to rebuild your house, but what if you’re liable for a fire that starts in your living room and consumes a neighbor’s house?

“In regards to controlling the expense, I have recommended that a number of clients consult with their insurance broker in order to ‘shop their rate’ and seek better terms from other insurance companies,” Balcom says. 

You can also review your policy to see whether you can drop or reduce coverage to reduce your premium. 

Another way to lower your home insurance costs is to live in a less risky area. When you’re purchasing a home, consider not only whether the area is flood- or fire-prone, but the home itself. Newer homes are typically built to stronger building codes and may suffer less damage in the event of a disaster, Hartwig says. 

For some people, the pull of retiring by the beach may be too strong to deny. But you should know it comes with added risk, and increasingly, added cost.

“Retirees are going to need to take into consideration the fact that higher prices for homeowners insurance, condo insurance, renters insurance, are going to be a fixture of relocation plans for retirees as far as the eye can see,” Hartwig says.

Image: Dominik Artner / Getty