Self Insuring Question

[Ian S]

A good friend of mine had his home burn just before Christmas last year. Total loss of a nice home in an expensive area. Fortunately, the family was able to escape but without much more than the clothes on their backs. I know they were glad to have insurance. It reminded me that although such an occurrence is rare, it can and does happen. I might skip on collision insurance for an older car but that's about it.

[RetiredAndLovingIt]

I used to think of not paying the house insurance when it's value was a lot less than it is now since the mortgage was paid off. I never actually did anything about it, it was just a thought that came up when the bill was due and I always went ahead and paid it.
One day I came home from work and drove into the garage to complete devastation, water pouring through the ceiling. Sometime that day, the tank hose on an upstairs toilet broke and was whipping around spraying water everywhere for hours. The smoke alarms were screaming, my two terrified cats were cornered in the only dry spot in the house and as we ran up the stairs the water was pouring down. I had to call 911 for the fire department to come and turn the water off I was so panicked I couldn't even remember where the shutoff was.
The insurance company showed up the next day with a team to empty the house and tear out all the drywall. They were so amazingly efficient and kind. The adjuster cut me a check right there and then to go find a hotel to live in and they even covered boarding for my 2 dogs and 2 cats. I was out of the house for close to three months, it cost the insurance company close to $150,000. During the rebuild when they turned the water back on, I had more water leaks at the water heater and a bathtub, it turned out the main house water pressure valve had failed which is probably why the hose burst in the first place, PSI was over 200
I ended up with a brand new house, except for the kitchen and I will never skimp or complain about insurance costs ever again.
That was back in 2012 and I'm still with the same company, I'm a customer for life and will be forever grateful for the way I was treated.
To this day, I still have PTSD type symptoms, I wake up in terror in the night and thinking I hear water running and I have to get up and check the entire house before I can back to sleep.

[ERD50]

Quote:

Originally Posted by njhowie When I see folks posting about self-insuring the first thing that always comes to mind is "Penny wise, pound foolish", especially when comes to homeowners.

Quote:

Originally Posted by frayne Probably a fair assessment.

Oh, I dunno. While I'm not suggesting it (I plan on getting a mortgage, so it's a moot point for me anyhow), I think it could be looked at as a rational decision, under certain circumstances.

I'd bet there are quite a few posters here whose home is not a huge % of their portfolio (we found that, generally, more money just buys you a *bigger* house, and DW did not want a big house). So even in a total loss, replacement could be handled by some w/o a lifestyle change.

Obviously, the ins company is making money on average. It's another area you could decide to play the odds.

So why not (other than the likely umbrella insurance requirement I just mentioned)?

-ERD50

[brett]

It is all comes down to risk. The amount of risk that we are willing to accept, our financial ability to contain it, and the cost of insuring for risks.

We routinely review insurance coverages for cost and risk. It might be increase deductibles on our home or vehicles, or removing glass or comprehensive from one or more automobiles. Premiums differ from location to location within a city or country for the same coverage. Ours tend to be priced by postal code.

[jkern]

I self insure for Earthquake insurance and LTC insurance because neither one of those policies have appealing terms.

When my car's value falls below $10K I usually drop comp & collision coverage.

[CuriousJoe]

Interesting thread.


We have an OLD house with dated kitchen, bathrooms etc. It suits us fine and we have no plans to move. It is in a great neighborhood, but we are told that it only has 'tear down' value - meaning, a contractor will buy, demolish and build a multi-million dollar house.


Since land can not burn, does it make sense for us to just self insure?

[ncbill]

Quote:

Originally Posted by RunningBum Consider the highest deductible you can go with on your house. I don't think I want to totally self-insure my house. See what you can save by dropping collision on your car.

Yep, I confess my deductibles are way too low...$250 or $500 on a half-dozen vehicles, $500 on home.

Need to get estimates how premiums are affected if I crank those up considerably.

[RetiredHappy]

Quote:

Originally Posted by CuriousJoe Interesting thread. We have an OLD house with dated kitchen, bathrooms etc. It suits us fine and we have no plans to move. It is in a great neighborhood, but we are told that it only has 'tear down' value - meaning, a contractor will buy, demolish and build a multi-million dollar house. Since land can not burn, does it make sense for us to just self insure?

If someone trips and falls down on your property and decides to sue you, you won't be covered. Umbrella policy is typically sold on condition of a home warranty/auto policy covering a minimum of $500K liabillity, although State Farm was fine with $250K.

[CuriousJoe]

Thank you RetiredHappy

[ExFlyBoy5]

Quote:

Originally Posted by RetiredHappy If someone trips and falls down on your property and decides to sue you, you won't be covered. Umbrella policy is typically on sold on condition of a home warranty/auto policy covering a minimum of $500K liabillity, although State Farm was fine with $250K.

This. Replacing the home is one thing, but covering a liability if someone gets hurt? That could get VERY expensive VERY quickly. I also think it would be difficult to get a naked umbrella policy if you owned your home without an underlying policy.

Nonetheless, I have found that I can keep our insurance rates fairly reasonable with a $10K deductible (homeowners).

[daylatedollarshort]

Quote:

Originally Posted by athena53 I agree with that. I never saw a standalone Homeowners Liability policy and if you want to buy Umbrella liability you have to have pretty substantial underlying liability coverage. Mine requires $500K. I suppose you could agree to self-insure that amount if the umbrella insurer were willing.

+1. We have an umbrella policy with State Farm and they have limits on how low we can go on the house and car insurance in as a condition of the umbrella policy. We also have earthquake insurance which DH hates paying for to no end since we could afford to rebuild if it came to that, but it would be a dent in the saving since rebuild costs per square foot are really expensive here, and I just feel better having it. We self insure for LTC.

[RobbieB]

Earthquake is very cheap for me. Yeah, 15% deductable, but it costs $100/yr.

[daylatedollarshort]

Quote:

Originally Posted by RobbieB Earthquake is very cheap for me. Yeah, 15% deductable, but it costs $100/yr.

Ours is over $3K! it is like the Doobie Brother's song, Livin' on the Fault Line!

[RobbieB]

Yeah, central valley not so impacted.

[CaliKid]

Quote:

Originally Posted by njhowie When I see folks posting about self-insuring the first thing that always comes to mind is "Penny wise, pound foolish", especially when comes to homeowners.

I don't disagree but if you look at statically speaking self-insurance is cheaper ON AVERAGE. Since self-insurance takes out the cost of the insurance company layers of management, sales commissions, etc.... On the other hand, the concept of spreading the bigger risk around does make sense since oh crap moments can happen at any time and can happen multiple times.

I sleep better with a multi-million dollar umbrella policy but since I hate hassles I'd rather self-insure small stuff. Of course everybody is different on what's small, what's a hassle, etc....

[Islandtraveler]

Classic definition of an asymmetric risk profile. Save a little, loose a lot.

[ExFlyBoy5]

Quote:

Originally Posted by RobbieB Earthquake is very cheap for me. Yeah, 15% deductable, but it costs $100/yr.

Our earthquake coverage is pretty pricey at about $350 a year and we wouldn't carry it except for the fracking that we have in our neck of the woods. Thankfully, the state started cracking down on some of the worst offenders so they aren't nearly as common...but still happen.

[njhowie]

Quote:

Originally Posted by CaliKid I don't disagree but if you look at statically speaking self-insurance is cheaper ON AVERAGE. Since self-insurance takes out the cost of the insurance company layers of management, sales commissions, etc.... On the other hand, the concept of spreading the bigger risk around does make sense since oh crap moments can happen at any time and can happen multiple times. I sleep better with a multi-million dollar umbrella policy but since I hate hassles I'd rather self-insure small stuff. Of course everybody is different on what's small, what's a hassle, etc....

For me/us, retirement means being completely stress free, not having any concerns that something could potentially derail that stress free aura. A big, unanticipated expense is one of those things that would create a disturbance in the force for us - regardless of our net worth. That being the case, as I would say is the situation for most retired folks on this site - the annual cost of homeowners insurance is basically irrelevant in the bigger scheme of things and relative to net worth. One claim could easily come to 10x, 20x or more times the annual premium. The house doesn't have to burn to the ground to have a significant financial impact.

We started with the umbrella policy two years ago, and will likely increase the limit on it at renewal this year. I think that statisically speaking, the umbrella policy is even less likely to have a claim against it - as the annual premium would imply. However, again, it does contribute to the stress free life and we're willing to pay the small additional amount annually for that.

[Koolau]

Back when we owned a home (not our current share of the condo bldg and grounds) we had the full range of insurance. Paid for years and years. DW lost the diamond from her engagement ring and talked to my cousin (our agent). The insurance was $500 deductible, so we made out okay on a new ring that DW liked. BUT my cousin warned us sternly NOT to have another claim for quite a while. In all the years with the company we had never had a single claim and yet we were "warned." Sounds like a racket to me. Still, you can't ignore the big downside of a total loss (fire, wind, water, etc.) My take (from my cousin's warning) was insurance should be for big stuff - not little stuff, even though, in theory, the little stuff is covered. YMMV

[Chuckanut]

Quote:

Originally Posted by Koolau Back when we owned a home (not our current share of the condo bldg and grounds) we had the full range of insurance. Paid for years and years. DW lost the diamond from her engagement ring and talked to my cousin (our agent). The insurance was $500 deductible, so we made out okay on a new ring that DW liked. BUT my cousin warned us sternly NOT to have another claim for quite a while. In all the years with the company we had never had a single claim and yet we were "warned." Sounds like a racket to me. Still, you can't ignore the big downside of a total loss (fire, wind, water, etc.) My take (from my cousin's warning) was insurance should be for big stuff - not little stuff, even though, in theory, the little stuff is covered. YMMV

Consumer advocate Clark Howard advises people to take out the largest deductible they think they can afford in the even of a loss. His reasoning is that once you make a claim, no matter how small, you are on the short list for igher rates and maybe difficulties getting coverage. So you want to save your claim(s) for really big losses that will be worth the grief of finding future insurance.

Quote:

So what’s the solution? Clark says you should consider putting roadblocks in your own path to lessen the likelihood that you’ll make a claim in the first place. “I want you to think about at your next renewal raising your deductible as high as your insurer or your mortgage holder will permit you,” Clark says. The benefit is actually twofold. “That way, you don’t even think about making small claims, and you’re also in a position where you get lower [monthly] premiums because you have that higher deductible.” By Clark’s estimation, homeowner’s insurance should only be used in the event of a significant and serious loss. You’ll have to decide how you define that in your life. “The more you can self-absorb instead of making a claim,” the consumer champ says, “the better off you’ll be.”