Income and Location Factors Create Financial Vulnerability for Homeowners Facing Extreme Weather
Extreme weather events are causing financial strain for many homeowners across the U.S., but those with limited incomes are feeling the pressure the most, according to recent findings from Bankrate. Rising home insurance rates and the shrinking availability of coverage for extreme weather are exacerbating the situation, particularly for those in high-risk areas.
Bankrate’s research indicates a clear divide between homeowners earning more than $80,000 annually and those earning less. Lower-income individuals often struggle to prepare for and recover from the financial impacts of events like wildfires and tornadoes.
Income Disparities and Emergency Savings
Bankrate’s Extreme Weather Survey shows that only 48% of homeowners with a household income below $50,000 say they are financially prepared for potential costs due to extreme weather, compared to 71% of those earning $100,000 or more. Additionally, Bankrate’s Emergency Savings Survey found that 71% of U.S. adults with an annual income below $50,000 feel behind in their emergency savings.
Preparing for extreme weather can involve unexpected expenses such as building materials for home protection and evacuation costs, which can quickly drain resources if an emergency fund is not available.
Homeowners in High-Risk Areas
Homeowners in high-risk areas may face some of the most significant challenges.
“In almost every metric of our survey, there is a clear divide between homeowners who earn more than $80K and those who earn less than $80K,” the report states.
Some of the most impactful home upgrades, such as raising a home’s foundation, can be cost-prohibitive. The survey found that 13% of homeowners with an annual income above $100,000 have invested in weather-proofing strategies in the last five years. This is almost double the rate of those earning below $50,000 (7%).
In the last five years, only 8% of homeowners earning below $50,000 and 11% of homeowners earning between $50,000 and $79,999 said they increased their existing insurance coverage or purchased additional insurance. In comparison, 15% of those earning between $80,000 and $99,999, and 19% of those earning over $100,000, took similar actions.
The Uninsured and the Impact of Location
According to 2021 data from The Consumer Federation of America, nearly 8% of homeowners are uninsured, putting a significant amount of property at risk. A large number of these uninsured homeowners reside in Southern states.
Southern states, such as Mississippi, Louisiana, and Alabama, face unique challenges due to extreme weather risks and often have home insurance premiums that are well above the national average.
“Consistently setting aside money for emergencies can be challenging if you’re already struggling to pay your living expenses every month,” says Karen Bennett, senior deposits writer at Bankrate.
These areas may also require higher deductibles, such as windstorm deductibles, which are based on a percentage of the dwelling coverage.
How to Prepare for Financial Risks
The first line of defense for homeowners to safeguard against financial losses from extreme weather is establishing an emergency savings fund. Financial experts also recommend a separate savings account reserved for emergency home repairs and upgrades. Even setting aside a small amount of money regularly, such as a small amount each paycheck, can contribute to this. It’s recommended to have three to six months of living expenses in an emergency fund.
Tips for Homeowners
- Review Insurance Policies: Homeowners should annually review their existing policy limits, endorsements, and exclusions to ensure they are aware of any changes or coverage gaps. Consult your insurance agent about potential coverage gaps and how to address them.
- Maintain Property: Implement strategies such as property maintenance to prevent policy cancellation or a reduction in coverage. Regular maintenance can increase the likelihood of full claim coverage in case of a loss.
- Create a Home Inventory: Preparing an inventory of personal property before a loss can assist in determining adequate coverage and streamlining the claims procedure after a loss.
- Prepare in the Off-Season: Plan for extreme weather in advance. Peak season often brings higher prices for services and materials. Preparing in the off-season can offer cost savings and allow time to get quotes for major updates, such as roof replacements.
This article was written by Shannon Martin, a Bankrate analyst and licensed insurance agent with over 15 years of experience in the industry.
