*Despite having a net worth of $75 million, Orman was shocked by a $28,000 annual insurance quote for her oceanfront condo in the Sunshine State. “$28,000 for a 2,100-square-foot condo? *
Can’t do that if you still have a mortgage.
My health insurance premium for a policy with a $5,000 annual medical deductible, and a separate $3,000 annual deductible for drugs exceeded $10,000/yr in 2013, the year before Obamacare started.
I dropped the coverage and self-insured for the year. At some point, a big premium for crappy coverage just isn’t worth it.
I also have minimal coverage on my condo (just liability with about 10% of the value of the structure and contents), for the reasons Suze Orman describes. The HOA will rebuild the shell if the place burns to the ground, but I’m prepared to rebuild everything from the stud wall inside on my own dime without the involvement and interference of the insurance company.
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Insurance is shared risk. When you buy insurance, you are in the same pool as people who smoke cigarettes in bed, plug five appliances into a single outlet, and don’t clean their dryer vents. Plus in the insurance companies takes their fees and profit.
If you can self-insure, you always should self-insure.
Which state are you in?
CT is inexpensive home owners’ insurance. It is worth it in a catastrophe.
That’s a controversial view. Insurance policyholders are patriotic and prudent. The self-insured are in the same ghetto with the renters. {{ LOL }}
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It’s good that she can afford to do it. I hope that she is not recommending that to her readers/listeners.
My brother is a Fellow in Casuality Actuary Society specializing in auto insurance. Here’s how he explained the game to me.
“We’re going to charge your “actuarial risk of loss”, at least a 20% annual fee to run the pool, plus an adder to account for the amount of fraud we see in the market. It’s always going to be cheaper to self-insure.” (Actually “self-insure” isn’t an insurance term. Actuaries call is “risk retention”.
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As MarkR points out, if you have a mortgage, you can’t self insure. But from what I’ve read about the Florida market, it’s pretty common for wealthy people with oceanfront property to “self-insure” if they’re financially literate. The people who are really suffering are those with mortgages, who don’t have the option, and will likely have to sell their homes because of the rising insurance premiums.
Same thing for Florida condo owners who are now paying the piper for 30 or 40 years of “deferred maintenance” with a rapid rise in HOA fees.
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Self insurance does not solve a condo owners insurance problem. As the condo association must insure, or provide proof of financial responsibility
i.e. Have enough unencumbered cash on hand to rebuild, all of the condo owners pay insurance via HOA fees.
Cheers
Qazulight
You can “self-insure” for build out inside the condo and it’s contents. (Your HOA is only going to rebuild a shell to the studs.) That’s probably 40% to 50% of the value.
Suze Orman is still paying the HOA fee which is going to include an insurance policy to rebuild the structure to the stud wall.
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Florida ocean front properties as investments are (mostly) in unsteady very very slow motion catastrophe mixed heavily with irrational denial (the State of Florida will step in and make certain insurance is affordable!). Coastal Florida is mostly highly permeable limestone, and that means the rising seas cannot be walled out.
Aral Sea fisherman took a lot of time to wake up, and the government just kept on reassuring them. Bye bye.
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Even the ones that didn’t have massive deferred maintenance are paying a lot. Apparently anything older than XX years is requires to have an engineering review which is somewhat costly. In addition to that, they need to more quickly assess their members for FUTURE expenses. So, if your condo will require a new roof in 4-7 years, they have to begin assessing now so they have the money when the time comes. Plus all sorts of other new requirements, all of which become costly because instead of 400 condos doing it all this year, it’s 4000 condos doing it, so all the folks who provide those services can charge top dollar right now.
That’s been the law in Washington State for quite a while. HOAs have to get independent “reserve studies” to outline the expected cost of maintainace and repairs and come up with a plan for financing it. My HOA has decided to not fully-fund the reserve study amount (we have reserves of about 60% of the total) and will instead have a lump sum assessment every 10 years or so to make up the difference when we do a large project. I’m fine with that. By law the HOA reserve money must be invested in something safe like a bank CD – they can’t put it in an S&P 500 index fund. I’d prefer to fund as much as possible of it in my personal investment account, rather than turn a larger amount over the the HOA each month for deposit in a bank CD at a lower return.
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Its been the law in Florida, too. However, it’s not been enforced. Our end of life study (for the purposes of managing reserves) has proven to be helpful, but not perfect.
I guess a 3% error is better than no plan. 
In my case I am paying about 600 a month of a 1000 a month HOA for insurance. I only have the inside insured for maybe 250,000 ( I forgot the number but it is about twice what a contractor would charge for a remodel, this is because after a hurricane all prices double.) That amount is only costing me a couple a grand a year.
The problem our HOA has is that we were black balled because we had to sue to get the insurance company to settle the Micheal claims. Also we stand very close to flood zone X. Around 11 feet above sea level. As such we have to carry flood insurance not just on the first or second floors but for all of the 12 floors and we end up insuring 14 million dollars of property value that only has 2 million at risk. (These numbers seem low. Our community center and pool is probably a million dollars.)
Cheers
Qazulight (Looks like 30 months to retirement for me, probably will leave Florida, Peru sounds nice)
I would guess the vast majority of condo insurance claims are not because the building is blown down in a hurricane but become someone on a floor above left the water running the bathtub and it flooded down through the ceilings and floors. Or started a grease fire in their kitchen. Or removed a load bearing wall without consulting a structural engineer.
And if you need to move out, the costs are on you, rather than being covered - at least in part - by a displacement clause in your insurance.
Yes, if you can afford to, “self insurance” is a good option. But not because nothing bad happens except for hurricanes or earthquakes.
Yes, so you hit the steady state, there are 100 approved independent places to get the study done and approved, for let’s say 50,000 structures. So each outfit does 500 studies per period required. Now in Florida, it’s relatively new (the requirement for independent studies, engineering evaluations for older condos, etc), and there aren’t enough qualified people to do such studies … so they charge A LOT to do the studies and the condos have to pay up, especially if they are close to deadline! Same for contractors that are approved to do various mitigations, etc. It’s become a kind of racket (as usual).
That’s liability coverage. I have a $5 MM Personal Liability Umbrella policy, but they wouldn’t sell that to me without buying an underlying Homeowners Policy. So I bought the homeowners policy with the absolute minimum coverage. Liability coverage is cheap because few people are actually sued despite all the lawyers advertising on TV. Damage coverage is what’s costly.
Say it would cost $200,000 to rebuild the interior of the condo, and I’ve only insured it for $20,000. If I had a $10,000 claim after a kitchen fire, they would only pay $1,000 on it since I’d only insured 10% of the value. So even the $20,000 worth of damage coverage I have is crap.
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All those ads are rarely targeted to people suing other people. No deep pockets there to pick, so no point. Those ads are meant for people to sue businesses and extract a few tens of thousands at a time in settlement (because mostly cheaper to settle than to go to court).