Self-Insuring A Risky Option For Florida Homeowners

(Photo: Dylan Sauerwein/Unsplash)

It’s already looking like the perfect insurance storm in South Florida, and hurricane season is barely underway.

Home insurance costs are going up, and more companies are threatening to drop South Florida homeowners. That’s why more local homeowners are considering going bare or “self-insuring.”

That means they plan to let their homeowner’s policy lapse and count on covering any hurricane damage out of their own pocket. Without homeowner’s insurance, “if your home burned down or was destroyed by a hurricane, you are on the hook to rebuild or replace everything,” explains Scott Sutton of WPTV.

That’s a very risky proposition for most people. Let’s look a little closer at what self-insuring might really mean.

Who can self-insure?

Self-insuring is normally only an option if there is no bank mortgage on your home. When you have a mortgage held by a financial institution, they want to make sure their investment is protected. The mortgage holder will insist on seeing proof of insurance coverage, so dropping your coverage is not typically an option.

How high could repair costs go?

Even for the people with no mortgage, self-insuring may be a penny-wise, pound-foolish decision. It’s hard to plan for the financial impact of hurricane damage. Here in South Florida, we can go several seasons without getting hit. But when a major storm heads toward us, like Andrew (1992), Wilma (2005) or Irma (2017), it’s impossible to predict in advance how much damage will be left in the storm’s wake.

Much of South Florida remembers how Hurricane Andrew leveled entire neighborhoods. Wilma was a less powerful storm, but knocked out power for two weeks, damaged roofs, and caused half a million dollars in debris cleanup costs in my neighborhood alone.

You may have heard how construction costs are already sky-high due to material shortages. Just imagine how high those costs will climb if a major storm hits our area. Replacing a tile roof in South Florida is one of the most expensive repairs a homeowner can face. That cost could easily double after a storm. Without insurance, will you have enough cash or liquid resources on hand to pay for that, let alone cover months of temporary housing in this ultra-competitive real estate market while you make repairs?

Other insurance options

Most consumers contemplating self-insuring do not have enough cash to repair, let alone replace, their home. While insurance can be expensive, it’s usually the best option for protecting the biggest investment you may have.

Talk to your homeowner’s insurance agent to explore other options like raising your hurricane deductible (typically 2% in Florida). Also, consider wind mitigation measures like impact windows, which can help protect your home and reduce premiums. If your home is located on or near the water, hefty insurance costs may simply be a fact of life. The only way to reduce costs may be to relocate to a less hurricane-prone area.

And one final thought – don’t forget the importance of flood insurance. Without flood insurance, you are not protected from rising water. In past years, 25% of actual flood claims have been on properties classified as low flood risk.

A small investment in insurance can protect you from major expenses, especially as we prepare for another Atlantic hurricane season with predictions for above-normal activity.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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