Thinking of canceling your home insurance because of rising costs? Consider these strategies and tools first

Americans are feeling the pinch of rising prices, from gas to home insurance costs.

The average annual home insurance premium for Americans is $2,966, compared to $2,802 last year and $1,602 in 2024, according to insurance comparison and shopping platform The Zebra. More frequent and severe natural disasters, along with tariffs and inflation in the broader economy, have contributed to rising prices.

That jump in costs may make you tempted to drop your coverage and save money. In fact, between 2015 and 2023, the share of uninsured homeowners without a mortgage jumped from 5% to 12%, according to the climate data and analytics firm First Street.

If you're considering this strategy, weigh a few factors first and take important steps to protect your assets. After all, the risks could outweigh the benefits.

"It becomes very challenging to be able to replace what you had," said William Connor, a Certified Financial Planner and partner at a financial planning and management firm Sax Wealth Advisors.

A better approach may be taking on more risk yourself, often by raising your deductible, limiting the perils on your policy or dropping additional coverages.

Going without homeowners insurance isn't an option for everyone — namely the nearly 60% of Americans with a mortgage, according to 2024 Census Bureau data, the most recent figure available.

Most mortgages require homeowners insurance, so you'll likely need to maintain a policy or forced-placed insurance will be added to your mortgage payment. Premiums for this can be more expensive than what's available from standard insurers.

However, there are some scenarios where it might start to make sense. "For a number of my clients who have bought second homes, or who have primary homes that have been paid off, it does become a more feasible conversation to have," Connor said of self-insuring a home. "I think the person this makes sense for is an older couple who's got their mortgage paid off. They don't necessarily have a huge, expensive property, it's not in a high-risk area, and they have assets."

But you'll also want to consider if it's worth the worry, and if you'd truly have enough on hand to maintain your standard of living if you lost your home due to a disaster that would normally be covered by insurance, like a fire or storm damage. For many people considering self-insurance, homeowners coverage is still a good use of funds when compared with your net worth, Connor said. "Even if it's not something you necessarily get usage of, it allows you to go do other stuff and not worry about it," he added, like travel and other retirement goals.

Dropping your homeowners insurance doesn't just mean foregoing protection of your home's structure. Homeowners insurance also covers other items like your personal property, as well as loss of use coverage, which pays for you to relocate if your home is unlivable due to a covered claim.

For most homeowners, leaving a policy behind also means missing out on liability coverage, which can protect you if you're held financially responsible for damages to others, whether it occurs on your property or not. "You've also walked away from protection against the dog bite or the guest who slips on your steps, and that lawsuit can cost more than the house," said William Lemmon, principal agent at Los Angeles-based independent insurance agency Broadway Insurance Services.

It could also mean foregoing excess liability coverage — sometimes called umbrella insurance — which can cover legal costs and protect assets beyond the lower liability limits of homeowners or auto insurance policies. Since this kind of coverage typically requires a certain minimum liability limit on your underlying policies, dropping homeowners insurance could make it harder to get this kind of coverage.

"You can get a liability policy without a homeowner's policy, but there are a lot more hoops to jump through," Connor said.

Your deductible, or the amount you'd pay if you had to file a claim, directly affects your coverage costs. The higher your deductible, the lower your premium.

Both Connors and Lemmon said that this is the first thing to reconsider if you're looking to save. "If you're willing to take on risk to pay less money, the first thing you do is change your deductible," Lemmon said.

While some deductibles are a flat dollar amount, like $5,000, other deductibles, like those for wind and hail coverage, are based on a percentage of the insured value. Raising your deductible from $500 to $1,000 could help you save up to 25%, according to the Insurance Information Institute.

Committing to a higher deductible means taking on more risk yourself, so you'd have to cover claims that would require less than your deductible to fix. "You're not filing small claims at all with a $25,000 deductible," Lemmon said.

Additionally, keep in mind that you'd need to pay the full deductible amount if something catastrophic happened, such as a fire or storm damage.

Before deciding, check your emergency savings to see what you'd be able to afford. Parking this kind of cash in a high-yield savings account can help it grow more than a typical savings account, while still being liquid enough to tap quickly if you need the funds.

Some of CNBC Select's favorite high-yield savings accounts include SoFi Checking and Savings for its cash bonus availability, as well as its $3 million coverage limit for FDIC insurability through the SoFi Insured Deposit Program¹, well above the standard $250,000 limit.

Marcus by Goldman Sachs also stands out for its generous APY with no fees or minimum balance requirements.

If lowering your deductible doesn't move the needle enough, consider dropping policy add-ons. Things like sewer line backup, service line damage and equipment breakdown coverage all bulk up the price of your policy. Removing these things could lower your premiums, but leaves you responsible for more.

Another option is changing your policy from an open-peril policy — which covers all forms of damage unless specifically excluded — to a named-peril policy. With a named-peril policy, you'd only be covered for a set list of causes of home damage, like fire, vandalism or other issues. But it could save you money. "You pay for exactly the risks you're worried about and nothing else," Lemmon said.

You might also consider doing some comparison shopping before you decide to drop coverages — after all, the insurer that offered you the best price a few years ago may no longer offer the cheapest coverage available.

Select recommends getting quotes from several insurers working in your area with the same coverage options, limits and deductibles then compare them to see what's the most affordable. To get you started, we've found that Amica, Nationwide and American Family all have reasonable rates and widespread availability.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed William Lemmon, a principal agent at Broadway Insurance Services in Los Angeles, California. We also interviewed William Connor, a CFA, CFP and partner at SAX Wealth Advisors in New York City.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance story is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC's regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.