Q: We own our home outright, without a mortgage. Because of the insurance crisis, what is the feasibility of self-insuring our house rather than renewing our policy at an ever-higher cost? —Thomas
A: Under certain circumstances, it is feasible to go without homeowner’s casualty insurance. Even still, it is rarely, if ever, a good idea or a sound financial policy.
Banks and other mortgage lenders are good at making money and protecting their investments.
I often look at what mortgage lenders require of their customers to gauge the risk of a proposed action. For example, when asked whether a homeowner needs title insurance when purchasing a home, I respond that although they are not required by law to have this valuable coverage, every lender I have dealt with requires title insurance when lending money.
If a bank thinks it is necessary to protect their investment in your asset, you should afford yourself the same protection. Lenders also require their borrowers to have a casualty insurance policy for many of the same reasons.
Most people think of insurance as covering the small events — a fender bender, prescription drugs and a leaking water heater. While this is important, minor claims rarely exceed the cost of the policy, especially when considering the deductible.
When insurance shines is when the rare severe event happens. Not having health insurance and developing a serious health condition bankrupts many people. A dented fender is easy enough to live with, but replacing a totaled car can cost decades of car insurance premium.
Similarly, if your house suffers a significant casualty, for example, a lost roof and flooding from severe weather, a fire, or even a guest hurting themselves on your lawn, the costs to the homeowner can be more than a lifetime of insurance premiums.
While no one enjoys paying their insurance bills, especially when they seem to increase every year, it still makes sense to grit your teeth and write a check.
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He practices real estate, business litigation and contract law from his office in Sunrise, Fla.