How Home Insurance Costs Are Impacting Household Budgets
Purchasing a home entails numerous expenses beyond just the monthly mortgage payment, including property taxes, maintenance fees, and homeowners insurance, all of which contribute to the overall cost of homeownership. Notably, home insurance has become an increasingly important factor in various regions as premiums continue to escalate.
An analysis by LendingTree revealed that homeowners with a mortgage nationwide allocate some 8.5% of their typical monthly housing expenses to home insurance. However, in certain states, this percentage is significantly higher. For example, in Nebraska, nearly 20% of the monthly housing costs incurred by homeowners is directed towards insurance, underscoring how weather-related risks and increasing claims costs are continually influencing housing affordability across the nation.
For homeowners who have a mortgage, housing expenses extend well beyond just the monthly principal and interest payments. Across the nation, the average homeowner allocates approximately $1,843 each month for mortgage payments, $311 for property taxes, and $200 for home insurance, culminating in a total monthly housing expenditure of $2,354. Notably, home insurance represents 8.5% of the typical monthly housing budget.
Home insurance share of monthly housing costs (nationally):
| Estimated monthly mortgage payment | $1,843 |
| Estimated monthly property tax | $311 |
| Estimated monthly home insurance | $200 |
| Estimated total monthly housing cost | $2,354 |
| Home insurance share of monthly housing cost | 8.5% |
Various factors have contributed to the rise in homeowners insurance rates in recent years. An increase in the frequency and severity of weather-related events has led to greater losses for insurers, while inflation has driven up the expenses associated with building materials, labor, and home repairs. There could be indications that the costs of home insurance are starting to stabilize, however.
“After double-digit increases in 2023 and 2024, rates only grew by 6% last year,” said Rob Bhatt, LendingTree Insurance Analyst and licensed insurance agent.
Home Insurance Varies by Region, State, Climate Risks & More
In Nebraska, home insurance constitutes almost one-fifth of the monthly housing expenses, marking the highest percentage across all states. Homeowners in this state are estimated to pay around $413 monthly for insurance, which accounts for 19.4% of their total housing costs. Oklahoma follows in second place with 17.6%, while Texas comes in third at 14.4%.
The risk associated with weather events elucidates why these states are positioned among the highest rankings. Homeowners in Nebraska, Oklahoma, and Texas frequently encounter hailstorms, thunderstorms, and tornadoes, which can result in costly insurance claims.
“Nebraska, Oklahoma and Texas all have severe wind and hail risks, and Texas homeowners face additional threats from hurricanes and even wildfires, depending on their location,” Bhatt said. “Insurance companies in these states have priced the potential costs of these types of disasters into their rates.”
Nonetheless, Bhatt observes that weather risk by itself does not consistently dictate the premiums homeowners pay for insurance.
“There are other states with severe weather risks that have lower home insurance rates,” Bhatt said. “Insurance is generally regulated at the state level. It’s important for leaders in each state to protect their residents with policies that help make or keep home insurance affordable.”
At the other end of the rankings, the scenario appears markedly different. In Hawaii, for instance, home insurance accounts for merely 2.1% of monthly housing expenditures, while Vermont is ranked second-lowest at 3.2%. Homeowners in these regions generally face lower insurance premiums, and the higher overall housing costs can lead to insurance being a lesser component of the overall monthly financial plan.
Top 10 States with the Highest Home Insurance Share of Monthly Housing Costs:
| Rank | State | Estimated monthly mortgage payment | Estimated monthly property tax | Estimated monthly home insurance | Estimated total monthly housing cost | Home insurance share of monthly housing cost |
|---|---|---|---|---|---|---|
| 1 | Nebraska | $1,365 | $350 | $413 | $2,128 | 19.4% |
| 2 | Oklahoma | $1,125 | $178 | $278 | $1,581 | 17.6% |
| 3 | Texas | $1,531 | $438 | $331 | $2,300 | 14.4% |
| 4 | Arkansas | $1,114 | $115 | $200 | $1,429 | 14.0% |
| 5 | South Carolina | $1,529 | $135 | $259 | $1,923 | 13.5% |
| 6 | Tennessee | $1,691 | $143 | $284 | $2,118 | 13.4% |
| 7 | South Dakota | $1,487 | $281 | $272 | $2,040 | 13.3% |
| 7 | Colorado | $2,781 | $241 | $463 | $3,485 | 13.3% |
| 9 | New Mexico | $1,445 | $189 | $244 | $1,878 | 13.0% |
| 10 | Alabama | $1,200 | $93 | $182 | $1,475 | 12.3% |
Insurance Payments Surpass/Match Property Taxes in These States
Numerous homeowners anticipate that property taxes will constitute one of the most significant expenses associated with homeownership. However, in certain states, homeowners are now allocating comparable amounts to insurance coverage—and in some cases, even more.
Tennessee is at the forefront of this trend. The average homeowner in the Volunteer State is estimated to spend around $284 monthly on insurance, which is almost twice the state’s estimated monthly property tax payment of $143. Following closely is Alabama, where homeowners are estimated to spend $182 per month on insurance and $93 on property taxes.
However, Tennessee and Alabama are not the only states facing this issue. Homeowners in an additional 13 states also allocate more funds towards insurance than they do for property taxes, including:
- Colorado
- South Carolina
- Arkansas
- Oklahoma
- Arizona
- New Mexico
- Idaho
- Nebraska
- Mississippi
- West Virginia
- Kentucky
- North Carolina
- Louisiana
On the other hand, in Virginia and Montana, homeowners allocate approximately the same amount for insurance as they do for property taxes.
Top 10 States with the Highest Insurance-to-Property Tax Ratios:
| Rank | State | Estimated monthly home insurance | Estimated monthly property tax | Insurance-to-property tax ratio |
|---|---|---|---|---|
| 1 | Tennessee | $284 | $143 | 1.99 |
| 2 | Alabama | $182 | $93 | 1.96 |
| 3 | Colorado | $463 | $241 | 1.92 |
| 3 | South Carolina | $259 | $135 | 1.92 |
| 5 | Arkansas | $200 | $115 | 1.74 |
| 6 | Oklahoma | $278 | $178 | 1.56 |
| 7 | Arizona | $238 | $162 | 1.47 |
| 8 | New Mexico | $244 | $189 | 1.29 |
| 9 | Idaho | $200 | $169 | 1.18 |
| 9 | Nebraska | $413 | $350 | 1.18 |
Across the nation, homeowners allocate approximately $200 each month for insurance and $311 for property taxes. However, variations at the state level frequently reveal a contrasting narrative.
“That shift from state to state may catch some buyers off guard,” Bhatt said. “Insurance used to be an afterthought in the homebuying process for most shoppers. In many areas today, the rising cost of home insurance is having an outsized influence over people’s buying power.”
On the other end of insurance, the study found that homeowners in the “Centennial State” of Colorado incur the highest home insurance premiums compared to those in any other state. On average, a homeowner in Colorado pays approximately $463 monthly for coverage, totaling around $5,553 annually.
But, why is this?
Weather-related risks contribute significantly to the elevated insurance costs in Colorado. Homeowners in the Centennial State are exposed to dangers such as hailstorms and wildfires, which can result in expensive claims and increased premiums. In contrast, the national average for home insurance premiums is $200 per month; however, homeowners in Colorado pay more than double that figure.
However, although Colorado has the highest insurance premiums in the nation, it does not hold the top position when evaluating insurance costs as a percentage of monthly housing expenses. In Colorado, home insurance constitutes an estimated 13.3% of monthly housing costs, whereas in Nebraska, it is 19.4%. The disparity can be attributed to the higher home values and mortgage payments in Colorado.
Overall, homeowners might find themselves with limited influence over inflation, extreme weather conditions, or trends in the insurance market. However, there are still measures you can implement to make your insurance coverage more cost-effective.
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