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Millions of US homeowners make 1 ‘huge mistake’ that can cost them thousands — here’s how to fix it ASAP

Updated: 06-11-2024, 03.18 PM

An alarming number of American homeowners are tempting fate by putting one of their biggest assets at risk, and it’s what they’re not doing that’s triggering worry among financial planners.

A new report from the Consumer Federation of America (CFA) found one in 13 U.S. homeowners are “going bare” by skipping home insurance. This short-term money saver creates long-term risks by leaving homes vulnerable to unexpected disasters. But why are so many opting out of coverage — and what can they do to protect their homes affordably?

For millions, skipping home insurance is driven by cost concerns, a misunderstanding of coverage, and, for some, the conscious choice to drop insurance because they’ve paid off their mortgage and no longer have a lender to require coverage.

“Concerns are growing that many American homeowners are forced by financial realities to forego homeowners insurance,” the CFA said in its report.

“But going bare puts consumers at risk of accruing significant financial debt to repair their homes, having to live with unsafe and inadequate housing conditions, or moving from homeowner to homeless after disaster strikes.”

To avoid the worst case scenario, it’s a good idea to find a balance between your budget and coverage needs without giving up insurance altogether.

Many uninsured homeowners cite rising insurance costs as a barrier, the report said. As premiums have steadily increased, especially in areas prone to natural disasters, the monthly expense can be prohibitive — causing people to forego it with hopes they’ll never need it.

Living outside designated flood zones or in areas with low crime rates can also lead some homeowners to assume they’re not at risk — logic that can lead to huge financial consequences since disasters don’t always hit within their predicted boundaries. The reality is that even in traditionally “safe” areas, wildfires, hurricanes, flooding and other emergencies can still hit hard.

Some homeowners may not think the coverage they would get would even be worth the cost or trouble of trying to find a policy in the first place.

“In recent years homeowners across the country have felt the pressure of escalating rates, diminishing coverage, and declining availability,” the report said.

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