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For example, if your premium is $6k a year and instead of paying the insurance company each year, you pay yourself that premium, after 10 years you'd have ($6k x 10)= $60k + ANY GROWTH if it was in a money market account.
And that is exactly why we would never self-insure.
How will you rebuild if your house burns down? $60K won't get you much house...
I believe it to be necessary for catastrophe loss or major sudden accidental loss.
If you have assets you wish to protect from lawsuits I have been told an umbrella policy is the best course of action. My insurance agent told me that in order to get an umbrella policy I had to have a certain level of auto insurance and homeowners.
All it takes is one incident and you could lose EVERYTHING with the exception of your 401k/IRA. While you might not "lose" the house they would likely place a lien against it so if/when you sell they would recover money from you.
You can lose cars, jewelry, any investment real estate, non-retirement brokerage accounts, bank accounts, and checking accounts PLUS you will have to pay your attorney as well.
Dropping your home insurance is Penny-Wise, Pound-Foolish in my opinion.
Homeowners Insurance is sort of like hedging your bet. You might pay a premium for having access to the hedge, but if something ever happens you're not out a ton of money at one time. I'd rather pay 60K over my lifetime and never use it as opposed to not having it and losing my home to fire or something. I insure my wife's ring, I can definitely insure my home.
I personally am probably ahead on my insurance premiums. I owned my house only 3 years when a Skunk died under my deck. The smell infiltrated my house and we had to run two commercial ozone machines for 6 days to get rid of the smell.
In addition, my Cedar deck was saturated in the skunk oil and had to be torn out. Insurance cut me a $23.5K check to rebuild my deck and pay for the remediation. Given that my homeowners is only around $1.3K a year, it will be a long time before I end up contributing more than I've paid.
Statistically, customers are not saving money and insurance companies are making money. I don't have homeowner's insurance.
True..I'd actually encourage anyone to look into where Insurance companies invest YOUR money once they pass the period of having to pay out your claims.
GEICO is notorious for investing into TV and Movie projects....making Warren Buffet even richer than he already is.
1. Take your approx coverage 250k for example
2. Divide by your premium
3. Multiply by 80% to take out expenses and profit
That is roughly your % chance of getting walloped.
You make a couple statements along the way that I don't fully agree with like having to spend your money to sue the insurance company and Geico's investments I won't even bother with.
In short the question you should be asking yourself is if your house burns down tomorrow do you have enough money to rebuild and restock etc? The amount in the fund is moot, most likely you will come out ahead but you could have an "oh poop" moment. Odds are going to be low, like a few percent.
I'd also ask yourself if you have any risky things that could cause problems? Bitey dogs or other animals? Fireplace? Wildfire risk? etc.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by H'ton
$1K/ year is manageable ..what if your insurance was $5k, $10k, $15k / Year...that is where it is headed.
That;s why I'm asking the question..there has to be a point the amount spent doesn't make sense per the risk %
Ours is already about $4,800, definitely a lot, but to rebuild this house would cost $825,000. We don't have enough cash on hand to even cover the 10% deductible $82,500 without dipping into our retirement accounts.
$1K/ year is manageable ..what if your insurance was $5k, $10k, $15k / Year...that is where it is headed.
That;s why I'm asking the question..there has to be a point the amount spent doesn't make sense per the risk %
Mine just went up to 3k. 2 years of insane increases now. It has gone through the roof here. I am currently looking at other insurers to see if I can get a lower premium.
But I would never go without it. No way.
$1K/ year is manageable ..what if your insurance was $5k, $10k, $15k / Year...that is where it is headed.
That;s why I'm asking the question..there has to be a point the amount spent doesn't make sense per the risk %
I live in a higher col area so I'm just throwing out the number of $150 sq/ft to rebuild. So let's say it takes 225k to rebuild my house, then it would take 45 years in premium savings to recoup that $5k annual premium. That's a long time to hold your breath for the other shoe to drop.
$5k to insure an asset worth several thousands of dollars is something I'm willing to do. Just remember, your insurance doesn't only include the home, but the personal property inside it like tvs, couches, beds, clothes, M249 SAW etc.
I wouldn't likely get away from having homeowner's insurance overall. However, you could try for a midpoint between the two. First, see if you can get a minimal policy that truly covers catastrophic events and an umbrella policy that covers liability. In other words, you have a homeowner policy that has a high deductible, doesn't cover small events, but does protect you from fire, major storms, water damage, etc. that could wipe out your home completely. If you can get that, then you can potentially save a significant amount on your premium and invest that for the "smaller" items that often result in claims (e.g., new roof after a hail storm, a new deck after a skunk dies under it).
Some insurance is mandatory, but the overall goal is to balance out risk. You certainly have the right to decline it, but then don't complain if something happens and you're out of luck.
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