Home Self-insurance

[Gromit33]

This is a duplicate of a thread I started in another forum and can't figure out how to delete the one in the other forum. Sorry.


I am trying to decide if I should pay off my ARM which is due in August or refinance. I ERed 4 years ago, at 56, and have a $50,000 per year CSRS Government pension which more than covers all my needs. I also have an IRA of about $225,000 and long term insurance. The proceeds will come out of my taxable accounts where the average return over the last three years is over 12 percent. It will leave about $60,000 . I will not touch the IRA and I'm single with no dependents and no other debts besides the house.

I'm 90 percent sure I am going to do this since my risk comfort level in a diversified portfolio to return over the 6 percent mortgage interest rate plus closing costs over the next 5 years is low.

I live in Eastern North Carolina where homeowner insurance rates are going through the roof. What do you forum members think of self-insurance? Do any of you do it? I'm talking about $2600 per year on a home I paid $188,500 for in 2005. If a storm did take my home I would not rebuild. However, I think that any storm damage would not be over $50,000, but even if a storm did destroy the house, it would not really change my standard of living.

 

[brewer12345]

Ultimately, what you decide to do will stem more from your risk tolerance than what the numbers say. I could make a case for either decision. Having said that, if the cost of funds is bothersome, why not look into refinancing into a HELOC? No telling what the Fed will do tomorrow, but right now you should be able to get a HELOC that costs 4.25% and has no closing costs. Then you can simply pay it off whenever you wish.

I do not think self insuring is a great idea in your case. If the house were destroyed, where would you get the money to buy another house? Especially if you use the taxable account to pay off the mortgage, the house represents a large portion of yor net worth. Instead of running that risk, I would shop around and maybe consider raising your deductible. Is this coastal property?

 

[Gromit33]

Thanks Brewer. It is coastal property but does not require flood insurance which I currently have. I could always purchase a new house with normal financing if I lost this one. I would still have the land which is worth about $75,000.

 

[ziggy29]

I assume that moving to a place that doesn't have such ridiculous premiums isn't an option here.

 

[Gromit33]

Not for the time being. I have a 33 foot sailboat I want to be near to. Besides, I would have to sell the house! When I purchased it 3 years ago the insurance was $460.

 

[Dave J]

Could the deductible be raised to say 5 or 10 thousand and cut the premium down much?

 

[FUEGO]

Don't forget that if you get hit by a massive hurricane sufficient to cause major/catastrophic damage, FEMA might step in and bail you out. Moral hazard and all that...

 

[VaCollector]

Maybe you're referring to your FLOOD insurance??....

After 2003's Hurricane Isabel (I'm sure that you were affected in NC as well) here on the water in southeastern Virginia....and experiencing the difficulties in dealing with insurance companies.....I decided to drop the flood insurance portion....especially when it went from $450 a year to $2500 a year

The insurance coverage (flood) did not cover what we thought it would/should and after having paid it for over 25 years, I thought the payout to be quite "out of whack".

Here I am 5 years later, and I have saved enough to cover MORE than all that I rec'd from the flood insurance program......I still carry liability coverage/regular homeowners....for fire, etc....and contents.

 

[Gromit33]

I'm not talking about flood which I currently have and it runs less than $300/year. Three years ago my homeowners insurance was $460, the following year $900, last year $1430 and this year $2600.

 

[Dave J]

Don't forget about liability if someone is hurt on your property. You could be broke in no time flat.

 

[nepo]

Don't forget about liability if someone is hurt on your property. You could be broke in no time flat.

Wouldn't an umbrella liability policy work in that case?

 

[REWahoo]

Don't believe you can get an umbrella policy unless you have home insurance.

 

[73ss454]

Yeah, the umbrella only kicks in after the ins. such as auto and home are used up. You'll also have to have good policies with good coverage to have the umbrella

 

[nepo]

Don't believe you can get an umbrella policy unless you have home insurance.

You are correct. I happen to have both and never thought about not having home insurance. (And if you drive or own a car you also need auto insurance to have the umbrella coverage).

 

[Gromit33]

In North Carolina IRA accounts are protected in bankruptcy against any creditors or judgments. So is a person's home. I'm not certain, but I also think that a government pension is also protected.

The policy I now have with Allstate has a $2500 deductable. I do have an umbrella policy but would this even be necessary if all my assets are protected by law?