Top 4 Alternatives to Purchasing Homeowners Insurance
Homeowners insurance companies are having a rough year. What’s worse is that they seem to be taking it out on us, their customers. According to an article on Policygenius, the cost of homeowners insurance went up an average of 21% between May 2022 and May 2023. On top of that, many insurance companies have stopped writing new homeowners policies in states like Florida, California, Louisiana and others.
Insurance agents and insurance consumers are having a harder time finding affordable insurance coverage in many parts of the country. Some are electing to obtain coverage through the excess and surplus (E&S) market, which in many cases would be a perfectly acceptable alternative to the standard market, especially as it shrinks in many areas.
But what if you don’t want to pay the high insurance premiums that your insurance company is billing you for? What if you aren’t confident in the E&S market? What if there are no E&S companies writing homeowners’ insurance in your area?
We have compiled our top four alternatives to buying homeowners insurance. Before you read on, please note most of these options will not satisfy your mortgage company. If you have a mortgage on your home and you are considering any of these options, please consult with your lender to determine whether they comply with the spirit of the agreement that you have with them.
Self-Insure
Insurance companies fund future losses by saving a portion of the premiums paid and calling it policyholders’ surplus. The purpose of that surplus is to pay future claims that the insurance company doesn’t know about yet.
One way that insurance regulators know that an insurance company isn’t going to become insolvent is by looking at the number of policies they are writing for each kind of insurance and determining how much money they should need access to so that they can pay the claims that are likely to come.
You have just one home, so this should be really easy for you to do. Right? All you have to do is look at the latest bill from your homeowners insurance company. Because you have already determined that is way too much to pay, you should probably decide what a fair premium should be every month. Then you take that amount and deposit it into a savings account for any future losses that you might have.
According to our actuaries, if it would cost $250,000 to rebuild your home as it is today, and you decide that you can pay yourself $1,000 every month into your self-insurance savings account, it will only take you 250 months (10 years and 10 months) to save up enough money to self-insure your home in today’s dollars.
Inflation may or may not change that calculation. You could also save yourself 10 months by accepting a $10,000 deductible.
Additional time may be necessary if you want to have money available for your personal property, liability coverage, and additional living expenses.
GoFundMe
Maybe that plan doesn’t work for you. I mean, what are the odds that you’ll be able to save $1,000 every month and that you won’t have to pay out any claims on your homeowners self-insurance fund for a decade?
We considered that saving that much money for that long of a time might be difficult for many. The next alternative to homeowners insurance is to prepare your GoFundMe account in advance.
If you took the family out for a nice dinner at your favorite restaurant and came home to find your house was burning, and you didn’t have homeowners insurance, a common response is to rely on the largess of the community and in today’s economy, that means that you start a GoFundMe account.
Rather than wait for the fire to happen, you could save yourself, and your community, a lot of time by getting that account set up and ready in advance. Also, after you’ve had a fire is not the best time to decide how much money you need. After you have sifted through the rubble to try and find your children’s plaster footprints, the last thing you want to think about is how much this is all going to cost to replace.
This way, after the loss happens, you can already have the great family pictures up, the pictures of the house before, the total amount of money that you’re asking the people around you to come up with because homeowners insurance is so expensive. Just make sure to account for the cut that GoFundMe will take so that you don’t end up needing more money later.
Friends and Family
Since your primary donors for your GoFundMe would likely start with friends and family, we mean something a little different. Let’s just say that you came home from a dinner with the family, and the house wasn’t a total loss in the fire. It just made it so that you would have to do a lot of repairs. Rather than doing the whole GoFundMe thing, or having money saved up, you can rely on your friends and family.
You’ll need to repair your house. Who better to call on than your friends and family? You can call everyone you know and let them know that you’re hosting a house party every day when the weather is nice. There’ll be food and plenty to do.
You can have a house party to clear up the debris. Bring in a roll-off dumpster and start putting stuff in there. That way, you can go through everything and decide what can be cleaned and repaired, and what needs to be thrown out. You can have another house party to begin the reconstruction process. What fun it’ll be watching everyone who still takes your calls frame up walls, hang drywall, install wiring, and everything else that will need to be done.
While you’re throwing these great house parties, you’ll need a place to stay. This is another place where your friends and family can help you out. They can provide a spare bedroom or two for your family to use. They might balk at the dog, but no one said everyone had to sleep in the same house every night.
Sell Your House … Don’t Buy a House
We listed this alternative to homeowners’ insurance as a last resort because no one wants to go through the hassle of selling a house and everyone that doesn’t have one wants to buy a house. So, as a last resort, you could forego the need for homeowners insurance by simply selling your house.Because insurance is a personal contract, and because you don’t own the subject of the insurance, you’re good to go to cancel that policy for a nice return premium.
The problem that remains is that you still might want to consider a different type of homeowners policy, called a renters policy, or a contents-only policy. That kind of policy will cover your personal property if it’s damaged, pay for a place to stay if your apartment or the house you rent (maybe the person who buys your house will rent it to you) is damaged and unlivable.
OK, You Got Me …
All kidding aside, it’s true. Homeowners insurance is getting expensive and insurance consumers are wondering why and what they can do about it. The best way to help them through this process is to help them to recognize what’s at risk, help them to understand the current market conditions and how this all happened, and work with them to find coverage that they find more affordable, but still covers their risks.
In a time when families are feeling the pressure of inflation in every area of their life, they can often feel like they are buying insurance and getting no value from it. It’s our job to help people to understand the value that the right insurance policies provide.