Don’t Say “Insured”
Let me play the salesman to any Florida readers who may be trying to get insurance right now.
Buy home insurance without windstorm (hurricane) coverage.
Financial guru Suze Orman has a high-rise oceanfront condo close to Boca, AKA the Jewish Palm Beach (built in response to antisemitic ordinances and deed restrictions), and they tried to nail her for $28,000 per year. She’s a person people look to for responsible advice, and she more or less told her audience to forget home insurance, if only by example. Why?
I spent a month in a high-rise in Boca on the beach. Belonged to a rich Jewish family. They let my mother, my sister, and I shelter there during a crisis. There is zero possibility any windstorm that isn’t the product of a nuclear blast 100 yards away will hurt a building of this type. They are 100% reinforced concrete from top to bottom. Trees can’t fall on them. Their roofs are relatively tiny compared to house roofs, and they are flat and strong. They can’t flood. It’s impossible for flying debris of any size to make it above the third floor, and flying debris is not much of a problem anyway. I went through Andrew, and even at 180 mph, the bulk of the damage was from wind against structures. I was in a house that got over 160, the front was largely unprotected glass, and there were no projectile issues.
What did the insurer want $28,000 for? Theft and fire, I guess. Way too much. They were just looking for a way to make Orman pay for other people’s hurricane claims.
When was the last time a high-rise burned down in Florida? It’s extremely rare. Theft is a problem, but you would have to have a lot of stuff in a little condo to make $28,000 per year make sense. In five years, you would pay $140,000. In 10, $280,000. Come on. If you have Klimts and Picassos, you can insure them independently.
There is no way she could ever have had hurricane damage in that place. I’m surprised she ever chose to insure against it.
A high-rise in Miami Beach collapsed a while back. Should she worry about that? Insurance is not the answer for a building that is about to fall over. The answer is to get out and avoid buying a similar home. Insurance isn’t going to lift 15 floors of collapsed concrete off you. Since the panic that followed the incident, inspectors and county officials have been in high gear, identifying and fixing dubious buildings, so you should be able to avoid properties that have issues.
What I’m getting at is this: she would have gotten nothing at all for her wind insurance premiums, and spending $28,000 to insure for wind, theft, fire and liability is ridiculous when wind is most of the cost.
I think she should have looked for fire and theft insurance. I’ll bet it would have been an acceptable deal.
Here is what Orman said: “I’m not paying $28,000 a year when the insurer will probably contest any claim I get anyway. Luckily, I have the money to self-insure.” That is true for her personalty, but she can’t rebuild a high-rise if it burns. She’ll have to eat a loss that is probably in the area of 3.5 million dollars. If she can insure against that for a few grand, it’s worth it.
If you reject windstorm coverage, suddenly your rates will implode, and insurers that gave you silly pretexts for refusing to insure you will suddenly find that you’re a good prospect.
That’s what is happening to me, anyway.
The last year I had an insurance premium I thought was reasonable, I paid about $3400. The next year (last year) I hit $8000. Too much, but I thought I had no choice. Then they said they would not renew at any cost, supposedly because I was too far from a fire station. That was a lie; it was obviously because of hurricanes.
This year, I sent my agent a request, asking for insurance without wind coverage. He expressed doubt because I was allegedly non-renewed over fire. Then on the same day, he sent me an offer. Get this: $1300.
Dude.
So much for that fire story.
It is possible I may not qualify because they may not consider my neighborhood a proper subdivision, which it, technically, is. But it shows you have to be stupid to get hurricane insurance when you are not in danger of having hurricane damage.
I have other properties that don’t have hurricane coverage because they’re not the kind of properties hurricanes hurt. There has never been a problem. The money I save could pay the mortgage on another property.
I wiped out all the trees that could conceivably land on anything expensive, and now I don’t need hurricane insurance. My roof is not going to come off in the kind of maximum sustained winds this area has suffered since the dawn of history. I made sure this area was flood-proof before I moved here. Worst case: I have to move downed trees and repair some fences. Big deal. Did that already in ’17.
I guess a claim should have been filed for the cost of debris removal. It wasn’t a big deal. Might have netted a grand or two after the deductible, but probably not. I would have had to find people to move the wood, which didn’t seem possible. They would never pay me for moving it myself.
Removing the dangerous trees this year cost me $7500. Very, very cheap. If I am able to get the insurance I was offered, paying the new rate plus $7500, I will save about $6000 in the first two years alone. And having a tree land on your house is terrible, even if you’re insured. You don’t want it. Far, far better to avoid the problem entirely. Insurers will try to cheat you after your loss. They will not be able to replace the irreplaceable. You’ll have to move for a while. Forget that. Cut the trees.
I had to remove the trees anyway. Some were rotten. All were too close. If I had decided to continue to pay for hurricane insurance, I would still have had them removed. I’m going to stay on this personally from now on cutting trees myself before they become problems.
I have a 50-foot oak beside my driveway right now. It’s sick. Bet you I can have it gone in three hours. Just me and the saws and the tractor. It’s easy, as long as nothing breaks down. A tree surgeon won’t touch it for under a thousand. I know.
What if you can’t cut the trees that endanger your house? What if you have a mortgage and have to have insurance. Move to Tennessee, I guess. I don’t know what else you can do, unless you’re so rich you don’t care.
I may have my roof bulked up from below. I have wind straps that are not the very best. Better ones can be installed in existing roofs. But it would take an extremely strong storm to remove my roofs, and we just don’t get those. A tornado would do it, but what are the odds? One in 10,000?
My choice isn’t wind insurance versus no wind insurance. It’s no insurance at all versus insurance that doesn’t cover wind. The choice seems pretty obvious.
When I travel, I want to know there is some chance I will be compensated for whatever people steal. Theft is very unlikely here, but it would cost me a lot. I want to know that if my house burns, I’ll get at least most of a new house. The other stuff is not important. Insurance payments are generally half-assed, inadequate efforts to put Band-Aids on severed limbs. I want a decent Band-Aid at a decent price. I am not stupid enough to think insurance will make me whole.
I admit, sometimes insurance is pretty good. A property of mine was damaged by leakage from an upstairs property. I wanted to have a contractor fix everything at the insurer’s expense. Easy. They wouldn’t have it. When I quibbled, they offered me over $8000 for work I thought might amount to $4000, and I took it. They wanted to settle and get out fast. But they do cheat people whenever they can.
I am no expert, but it seems to me every Floridian who wants homeowner insurance, and who can reduce hurricane damage risks to near zero, should look into getting rid of wind insurance. I’m going to do it if I can work it out.
MORE
I am blogging again in order to avoid heat stroke. I’m yanking the awful hedges the original owner of this house put in by the driveway. Should have done it 7 years ago. My mouth got dry, and in the house I came.
I thought I’d comment on a story about Charlie Munger, Warren Buffett’s business partner. He is supposedly worth $2.6 billion.
His advice? Never pay for insurance. He says he doesn’t have home insurance because he can write a check and build a new house.
I have mixed feelings about this advice, because he’s wrong. Sometimes insurance is great. Examples:
1. Your house’s value is NOT less that 0.05% of your net worth. This applies to a shocking number of people, Mr. Munger. To many people, losing a house is worse than dropping a pizza. If my current insurance offer goes through, I can get a new house and new stuff for $1300. I may live 30 years, so ignoring inflation for obvious reasons, I might have to come up with $40,000 over that time to pay for a house that would cost way more than that to replace, along with new stuff. I would have to be quite stupid not to take that deal. It would take me lifetimes to pay the insurer the value of what I could lose. If I were worth $2.6 billion, I would still take that deal. Fires do happen.
2. You live in an area where morons like to fall down and sue people. That covers a lot of the US. If you’re worth $2.6 billion, maybe you’re not afraid of a $2 million verdict for a con artist who says he can’t work because he fell in your driveway, but many people are worth considerably less than $2.6 billion and would feel the impact of a $2 million loss more than the loss of a coffee mug.
3. You rent cars when you travel to other states or countries. If you can rent a car for $300 without insurance and $375 with insurance, take the insurance, especially in a foreign country. American insurance generally doesn’t work in other countries. Do you really want a rental agency in some Stan country to put you in jail until you pay for a wrecked 2004 Scion with chicken manure in the glove box? I wrecked a rental car once while traveling. The lady in the other car claimed she had medical issues. I don’t know much about it, because they gave me another car, and when my trip was over, I flew home. I didn’t know she claimed she was injured until months later, and I had zero involvement with the whole business because I paid for insurance.
4. You travel abroad. See above. You can get a huge amount of insurance for a couple of hundred dollars when you go abroad for three weeks. Medical. Evacuation. Liability. How can you turn that down? I must stress that this is another situation in which my advice is intended for people worth substantially less than $2.6 billion. Travel insurance is just too cheap and helpful to pass up, unless you are filthy rich. The potential downside of not being insured is huge.
5. Sometimes a product is so awful, insurance is a smart idea. This used to be true of laptops. Maybe it is now. They broke down all the time. I bought an expensive laptop a long time ago, and I had no problem with the price of insurance. I would never insure something like a washing machine, but some products just can’t be trusted, and sometimes the cost of insurance is unrealistically low.
You may think your homeowner’s insurance covers stuff like this. Okay, sure. Do you know what your deductible is? I had a $2000 problem, and my deductible was $2500. This is why I keep my car deductibles as close to zero as they allow. A low deductible doesn’t jack the premiums up much at all, and it makes claims pleasant.
6. Dealing with a loss is just too much of a pain. What if you’re a contractor, and your ladder or impact driver breaks? Do you want to lose work while you send it to the factory, or do you want to pay 15% extra and have them hand you a new one at the store, no questions asked? Think carefully. This is not supposed to be a tough question.
If the downside is tolerable and the insurance is expensive, don’t pay. If it’s the other way around, pay. That’s what I think.
My dad taught me never to pay to insure anything I could insure myself. Basically good advice, but oversimplified. When Best Buy asks me if I want to pay $50 to insure a $200 item, it offends me, but I pay when the deal is right.
Maybe I’m missing something here. It has been known to happen. I do think extremely rich people should pursue different strategies from the rest of us. If I were Kim Kardashian, and I wrecked a Bentley, I would have a new one brought to my house, have an assistant file a claim, and give it away when it was fixed. If I were the assistant and I wrecked my 3-series BMW, I would probably take a different course.