Self Insuring Question

[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]

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]

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]

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]

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]

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]

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]

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]

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]

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.

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.”

 

[meleana]

We insure our home and have umbrella insurance also. We also fully insure our cars, but only liability is actually required in NH where we live. The rates for all three are reasonable here.



We are in our 60's so no more life insurance (we had term) and no more disability insurance.



Obviously we have Medicare and supplements. That's it.

 

[Hyper]

We have to show proof of vehicle ins to get tags each year so not sure how one would self ins those. We have no warranties on a 15' and a 19' so we self insure mechanically I guess. Warranties in our area, we find totally worthless as they always find an excuse to deny warranty. We may find out about self insuring a home as we will very soon be building a cabin on very remote land (full time home) and state farm won't insure it as it's well past 10 miles from a fire department. So not sure how that is going to work out but we will try to find some kind of home insurance elsewhere.

 

[RAE]

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.

For your primary home, I would agree. But what about a small vacation home? In a case I am thinking of, the land is probably worth more than the home, and the cost of insurance (in the location where the home is) is beyond outrageous, and getting higher every year. Should a disaster happen at the vacation home, it would of course be a financial hit, but at least it wouldn't necessitate looking for another place to live.

 

[athena53]

For your primary home, I would agree. But what about a small vacation home? In a case I am thinking of, the land is probably worth more than the home, and the cost of insurance (in the location where the home is) is beyond outrageous, and getting higher every year. Should a disaster happen at the vacation home, it would of course be a financial hit, but at least it wouldn't necessitate looking for another place to live.

That's pretty much the risk my parents took in not buying windstorm insurance in North Myrtle Beach but they knew what they were doing. I suspect if it had been blown away they would have sold the land and rented or bought a condo.

The kind of "self-insurance" definition njhowie cited is more like, "We're not going to buy insurance and probably nothing will happen".

 

[RAE]

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.

Just out of curiosity, has anyone reading this thread ever had that kind of thing happen to them..........someone getting hurt on their property, and then filing a lawsuit against the property owner? I know it can happen, but I'm wondering how often it actually does happen. Also, wouldn't the person filing the suit have to basically prove that their injury was caused by some kind of hazard on the property that the homeowner should have been aware of and did not fix? I'm not an attorney, but it seems to me that if someone trips on the walkway leading up to my house and gets hurt, and there are no holes, bumps, or other obvious hazards in the walkway, what are their chances of winning a lawsuit for damages, even if they do decide to file suit?

I know anything can happen, and there is always the potential for someone to sue and ruin a person financially, but I'm just curious how often this kind of thing does happen in the real world.

 

[daylatedollarshort]

I know anything can happen, and there is always the potential for someone to sue and ruin a person financially, but I'm just curious how often this kind of thing does happen in the real world.

Our estate attorney says he has read about that as well but it never seems to happen to any of his clients.

 

[USGrant1962]

The fact that a million dollar umbrella policy is only a few hundred a year is an indication of how rare it is. But insurance is for rare events.

 

[RobbieB]

Yeah, this. You do not want to be filing itsy bitsy claims. This just annoys the company and puts you on the "quick disconnect" list. Just one more...

 

[athena53]

I know anything can happen, and there is always the potential for someone to sue and ruin a person financially, but I'm just curious how often this kind of thing does happen in the real world.

Ancient history, but.. in 1971 I knew a guy who had injured someone in an accident and he had no insurance. There had been a judgment against him and he was paying it in instalments.

 

[Irishgirlyc58]

I’m in Northern California surrounded by rivers and a dam that almost failed in 2017 45 minutes away so I have flood insurance. Not sure it’s necessary with the drought we are having. Premium was $572 this year.

I need to look at earthquake insurance. We aren’t a high earthquake area so maybe minimal cost.

I looked into increasing my homeowners and vehicle insurance deductibles but the cost difference was so small I’d rather have the coverage.
I also have an umbrella policy.

I self insure for small things- appliances etc. typically getting the replacement is more hassle than it’s worth.

I’m still working but contemplating self insuring for dental when I retire. Haven’t decided that yet. As someone said upthread dental coverage is minimal compared to cost.