For years, I've been warning you about homeowner's insurance (and property tax, too). I want to say more about homeowner's insurance.
- Insurance isn't as profitable as it used to be due to a multitude of factors (lower returns on invested premiums, higher payouts due to inflated home prices, more frequent catastrophe due to homeowner and government ineptitude, etc.).
- Rates will continue to rise.
- Policies will continue to be cancelled.
With the recent ridiculously expensive and widespread fires in California, you can bet that these factors will accelerate.
If you have a mortgage, your mortgager will require you to hold homeowner's insurance. As the number of carriers willing to cover you dwindles, your cost will skyrocket.
Increasingly, homeowner's policies are harder to get to payout and less likely to cover anything close to the cost to rebuild.
Here are some alternative options to consider:
- If you live in a place where a community catastrophe could occur (flood plain, wild fire hazard), do what you can to mitigate this risk. Moving is always an option, but more creative interventions exist. If you are in a flood-prone area, do you have sandbags? If you are in a wildfire area, do you have a water tank and sprinklers on your property, and have you at least made a fire break around your house by cutting down trees and removing other flammable items?
- If insurance companies are cancelling policies in your neighborhood, do what you can to move as soon as is practicable. The harder it is to get homeowner's insurance where you live, the harder it will be to sell your house.
- If your home is paid off, consider self-insuring. Instead of paying premiums, invest that money. Do your own due diligence on investment options. A passive S&P 500 index fund, a second home as a rental, and many other options exist.
- If your home is not paid off: 1) consider shopping around for a lower premium. Note that different companies offer different rates, but also note that each company also offers different policies. If you choose the one with the highest deductible, you could save 50% on your premiums. 2) consider what sacrifices you can make to pay off your home earlier. Old advice that advocated holding a mortgage in order to invest savings elsewhere didn't account for ridiculously high insurance premiums.
In all things, you have to evaluate your options and choose what is best. This is an individual decision, but you should never do what everyone else is doing simply because everyone else is doing it. Have the best reasons for what you do.