Home insurance need - is home insurance mandatory?

Submitted by Anonymous (not verified) on Wed, 09/24/2008 - 05:40

Is Home Insurance absolutely necessary to own a home ?

Posted: 24 Sep 2008 05:55 Post Subject:

Hi,
I don't think the state laws would push you towards mandatory home insurance. Under circumstances that you have bought your home with borrowed money or through a mortgage, then you would need to have home insurance for it. Your lender may ask you to go for the same, since he would like to be sure that he would not suffer any losses in the future in case your home gets destroyed due to any accidental or natural disaster.

It would be your choice to maintain the policy or cancel it, whenever you have paid up the entire cost of your home.Still, it is advisable that you carry on with this policy, since it would protect you from the potential losses that are associated with a disaster.
Evan

Posted: 24 Sep 2008 06:41 Post Subject: Is home insurance necessary?

Hi,
It is quite usual for some of us to believe that life would carry on in its usual pace & would never be distracted. But history shows that if you're going that way...then you're certainly carrying that risk wherever you're going. I've come to know that in the UK at least a third of its population has the chance of suffering from such hazards at any point of time. Such people who do not have any coverage are always exposing themselves to heavier financial losses that get associated with storms, fire, floods etc. Under such circumstances it would not only be our home but also the valuables that we need to worry about. It proves that our home insurance need must be fulfilled in order to make our lives safer. We'd never have to ask- is home insurance necessary? Home insurance would always save us from worrying about such hassles. Thanx, ArindamSenIndies

Posted: 24 Sep 2008 07:12 Post Subject:

Guys, see...it is quite natural for most of us to think that home insurance would not make much of a difference..especially when we are staying within a safe area & the weather mostly consistent & known to us over the years. Under the cover of a strong security alert or a fire protection system it might just seem unnecessary to pay premiums for such coverage that may never come to any good use for us.

But what is important to remember over here is that even when you have the slightest possibility of experiencing floods, a flood insurance coverage would come to great use. Again, I have seen that such coverage can also be opted for a specific period of time for which you may have some valuables under your possession. For such instances even a cheaper coverage would serve your purposes. Hope this information helps you a bit! Evan

Posted: 24 Sep 2008 11:25 Post Subject:

Source LINK.

My comments are offered for mathematical fun and not to endorse or promote anyone going without homeowner's insurance.

That being said the chances of your home burning down is 1 in 386.

Putting that in human terms if you could live for 386 years you would experience a catastrophic home fire once in your life.

There are other risks such as hurricanes, tornados, floods and earthquakes but those are generally geographically limited.

In Florida we are in a situation where you can pay a homeowner's premium to the Gubment run Citizen's Insurance and NOT have coverage or you can keep your money in your pocket, take your 1 in 386 chance and NOT have coverage.

Citizen's readily admits they do not have the money to pay for catastrophic hurricane losses in Florida. So all you are actually buying is fire insurance, liability, loss of use and personal property.

I'm going to get beat up now because I've wandered into the P & C (Properly and Casually) arena of which I am nothing more than a frustrated consumer.

Posted: 24 Sep 2008 01:52 Post Subject:

Setting aside the "something happening to my home" scenario, there is also a liability issue. If someone gets hurt on your property, regardless if they were invited onto the property or not, you could be held liable.

HO insurance will also cover if something is stolen from your home and (sometimes) your auto.

Posted: 24 Sep 2008 02:41 Post Subject:

Putting that in human terms if you could live for 386 years you would experience a catastrophic home fire once in your life.

Good thing I only plan on living 1/2 that long!

Posted: 25 Sep 2008 12:39 Post Subject:

But what is important to remember over here is that even when you have the slightest possibility of experiencing floods, a flood insurance coverage would come to great use.


Very true!
One of the best ways to deal with this situation would be to opt for the NFIP (National Flood Insurance Program) which covers the risks of homeowners as well as businesses based along the coastlines. NFIP would also help reimburse for certain equipments within the home eg. water heater, washer, dryer etc. But one thing you'd need to remember is that it would not cover for the external facilities of your home or even the contents for that matter.
Roddick

Posted: 25 Sep 2008 12:43 Post Subject:

Hi,

If you'd like to go for a wholesome policy, you must get a separate rider that would take care of the contents within your home. In my opinion, it is going to be a great experience for you whenever you're under the shadow of a disaster. Fatman

Posted: 25 Sep 2008 02:02 Post Subject:

Hi, the good thing about NFIP is that its quite easily available. Very rarely you'd come across people who would not find such a coverage. You'd just need to consult with an independent insurance agent regarding the features of the NFIP coverage and note them carefully. You would have to bear a waiting period of 30 days before the activation of your benefits.
Roddick

Posted: 25 Sep 2008 03:43 Post Subject:

Hi Purplehead

It is not necessary to have home insurance to own a home. However, if you need a mortgage to buy your house then a lender is likely to require it so they know that they are protected (as Evan mentioned)

I can't imagine not having home insurance. A fire, or tornado, or flood (where covered) can destroy your home, destroy all your personal belongings, force you to have extra expenses while you find alternate accommodations. Even if the odds are remote, is it worth the risk?

Gary, I think you are expressing frustration about the cost of home insurance?

Let's use the stats that you found to build a rough example of where premiums go and the cost.

1 in 386 homes burns down each year. Let's take an arbitrary number of an average home's rebuilding value of $250,000 (is that unreasonable?). Divide $250,000 by 386 and the average cost to insure for fire alone is $647 per house. Say it's $100,000 (that is certainly low) – the average cost to insure for fire alone is $259. This is without coverage for anything else like theft, vandalism, windstorm, electrical damage, burst pipes, etc. It also is without liability claims factored in.

I don't know what an average cost of insurance is in every area so some of you might take issue with my very simplified actuarial calculations (actuarial ? HA! An actuary reading this would cringe). I do hope this helps the discussion along though.

And the rough math I gave doesn't account for all the small claims each year for a few thousand each (stolen items, wind damage, etc). They really add up. If even one in 20 has a small claim of $2000 that forces premiums up.

And my rough math doesn't account for profits, administration, commissions, etc. Gary – you don't mind an insurance guy making a commission do you? Don't worry, I know the answer. :D

Anyhow, I hope you see my point and follow my rough math


PS - Gary - thanks for sharing that link! Do you happen to have other stats for other types of insurance??

Posted: 25 Sep 2008 03:44 Post Subject: insurance

Wanna add my ' 2cents2 ( LOL ). My family lives in CA. When my parents and sisters bought their homes, they HAD to have Home Insurance...Earthquake Insurance, in their loans. I was born and raised their. LOTS of earthquakes out there. But..I do agree with someone said. No law SAYS you have to purchase Home Insurance, except if you GET a loan for a new home. I live in PA..............I don't know about the 'Home laws' here.

Posted: 25 Sep 2008 09:05 Post Subject:

Gary, I think you are expressing frustration about the cost of home insurance?


Yes.

In Florida a normal homeowner's premuim prior to all the recents hurricanes over the past 10 years was about $600 to $900 per year for an average home.

Now those premiums are $2,000 to 3,500.

That's $167 to $292 per month just for homeowners insurance.

Now using our non-actuarially sound methodology 386 homes paying $2,000 per year in premium equals $772,000 dollars paid in.

So if they pay out 1 fire per year the insurance company is still ahead $522,000 to pay out small claims and commissions! :wink:

It's real hard for me to justify paying $250 per month for homeowner's insurance and especially knowing the Gubment run Citizen's Insurance can't pay its claims anyway. :x

I never liked Properly and Casually Insurance....I hope I got that right?

Posted: 25 Sep 2008 10:14 Post Subject:

I don't think insurance companies are worried about fires in Florida. I also don't think a total loss from a fire is much concern either.

Your figures are also not relative as they are, at best, reflective of a single home. If we are going to talk about the chances of _1_ home burning down then we'd also need to figure what the premium with be if this were the only home in question. That is, what would the premium be if there was a 1 in 386 chance of the entire home burning down. I'd guess just a little more then that $3,500 you mentioned.

But also, why are we limited the risk to fire and even then, only a total loss due to fire? Why not look at the possibility of wind damage in Florida. How likely is that?

Do I think carriers are over-charging in Florida? Probably. But I also _know_ their loss ratios are _well_ above 100%!

Posted: 26 Sep 2008 12:22 Post Subject:

And then you have some little hurricane come along...umm...like...say....Andrew.

Hurricane Andrew destroyed 25,524 homes and damaged another 101,241.

I know Andrew was a rare situation but I'm thinking those 126,000 homeowners who had insurance were pretty glad they did.

Posted: 26 Sep 2008 12:52 Post Subject:

Do I think carriers are over-charging in Florida? Probably. But I also _know_ their loss ratios are _well_ above 100%!



That's TRUE.

And playing devil's advocate if 386 homes valued at $250,000 each got flatten by a hurricane the total loss to the insurance company would be $96,500,000 vs premiums of $772,000 based on $2,000 annual premium per house.

Which brings me to my point.

Citizen's Insurance in Florida can't collect enough premium to ever pay for such a loss which makes me feel like I'm just throwing away the money spent.

They mathematically cannot pay those claims so all I'm really insured for is the 1 in 386 chance of a home fire.

In my humble opinion.

Posted: 26 Sep 2008 05:48 Post Subject:

Hi Gary

Glad that my math was acceptable ....

Citizen's Insurance in Florida can't collect enough premium to ever pay for such a loss which makes me feel like I'm just throwing away the money spent.

They mathematically cannot pay those claims so all I'm really insured for is the 1 in 386 chance of a home fire.



But would there not be reinsurance in place? And don't the company's operating in Florida have operations elsewhere? So money would come from elsewhere to cover these claims. And not every policy is going to cover a hurricane - correct?

Don't worry Gary - P&C is very frustrating to me as well - and I sell it!

Posted: 26 Sep 2008 08:06 Post Subject:

Ontario Broker we'd both get an F- if a real actuary saw our simple calculations but we're not trying to be actuarily sound we're just trying to make a point for discussion.

But would there not be reinsurance in place? And don't the company's operating in Florida have operations elsewhere? So money would come from elsewhere to cover these claims. And not every policy is going to cover a hurricane - correct?



I couldn't tell you whether or not the state of Florida has reinsurance or not. Citizen's Insurance is a state run entity. It's not an insurance company.

Yes, companies operating in Florida have operations elsewhere but that's not how they base their rates.

It's Allstate Floridian Insurance Co. LINK.

or

State Farm Florida. LINK. Separate and distict companies from their big brother. Those companies are more like wicked step-children and neither is writing new business.

State Farm Florida Insurance Company commenced business Feb. 1, 1999 and is the primary writer of homeowners and property liability insurance in the state of Florida.



My State Farm agent for all intents and purposes sells auto insurance only.

Posted: 26 Sep 2008 08:16 Post Subject:

Ontario Broker we'd both get an F- if a real actuary saw our simple calculations but we're not trying to be actuarily sound



you got that right!

Posted: 13 Oct 2008 10:10 Post Subject:

"" And then you have some little hurricane come along...umm...like...say....Andrew.

Hurricane Andrew destroyed 25,524 homes and damaged another 101,241.

I know Andrew was a rare situation but I'm thinking those 126,000 homeowners who had insurance were pretty glad they did.
_________________
Enjoy every sandwich. - Warren Zevon ""


And then I think of the thousands of Homeowners still waiting for their turn in Court so they can *Maybe* be paid and begin rebuilding their Lives "After Katrina".

Makes one want to go right out and buy Insurance....... NOT!

FK,

Add new comment

Restricted HTML

  • Allowed HTML tags: <a href hreflang> <em> <strong> <cite> <blockquote cite> <code> <ul type> <ol start type> <li> <dl> <dt> <dd> <h2 id> <h3 id> <h4 id> <h5 id> <h6 id>
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.