An Alternative to Homeowners Insurance for Those of Us Wanting to Live Simply
The concept of how insurance is to serve humankind goes as follows:
Tragedy is rare, so if the masses pay a few dollars each month for peace of mind, they will be protected on the off chance that things go wrong. Everyone wins.
It is a concept that is good and pure at its core. It is a concept that should work. But instead of serving its purpose, it has become a perverted thing predominantly serving impotent greed.
From time to time I have an idea. Like all ideas, it may be good, it may be a bad, or it may simply need revision. Only time will tell. To expedite the process, as I so often do, I’ve decided to enlist the help of my friends. You folks can tell me whether or not you think I’m on to something.
Why We Have our Crappy Homeowners Insurance
My idea begins humbly as follows. The other day my wife and I received our yearly home insurance bill. It came to around $1,500. We live on a nice little plot in the country. The house is a small one that began life in the early 1950s. Over time this and that has been added on to it, and as things are, it is right around 1,000 square feet in size. Just enough space for my wife and I, our daughter, and God willing, one more child in the future to live in relative comfort.
The insurance we have wouldn’t cover anything if something went wrong: a tornado, as is so common in Oklahoma, or a flood, which has been the favor of God’s wrath in recent months. Our insurance company would find some way not to cover it, and even if something went wrong and we were to somehow beat our insurance provider in court after years of litigation, and they actually were found accountable for their responsibilities (Imagine that!), we would be so put out by that point that any perceived benefit would only go to our lawyers.
We know this, as much as we know there are some insurances that actually work, but we chose this insurance for the same reason most people choose their insurance: because it is relatively cheap in comparison to insurance that works, and we know with a little luck we will never have to use it.
By now you may be asking yourself, But why have insurance at all if you know it won’t work? The simple answer to this query is that we have to. We couldn’t buy our house outright because we didn’t have enough money. We couldn’t put as much money into the purchase of our home as we wanted, because you can’t get good interest rates unless you borrow “X” amount of dollars or more. And you can’t by a home by paying out a mortgage unless you have home insurance.
Do you believe lenders should be able to force homeowners with a mortgage to purchase homeowners insurance?
If You Have to Get Insurance, Why not Get Good Insurance?
So if you have to get insurance, why not get the kind that works? This is where things get interesting. My wife and I have decided to live life simply. We purchased our home last year for $47,000. The house, though in good shape and a place we love, doesn’t account for half this. The land where we can grow our own fruits and vegetables and raise a bit of livestock is the jewel of the property.
Land doesn’t need insured. Land is always land. I can’t know for sure, but whether or not the house we currently live in will still be here in 100 years is up for debate. Barring a cataclysmic event, our land will be. Let’s put it this way, our land doesn’t need insured because if it isn’t here next year, then that will probably mean we are no longer among the living, and even if we are, we’ll all have bigger problems to worry about than insurance.
So basically we have a house worth maybe $23,000 dollars that we have a 15 year mortgage on. We’ll probably pay it out well before then, but let’s assume we’re like most people and we don’t. 15 multiplied by $1,500 (This insurance price will only go up each year, by the way.) equals $22,500. In other words, as near as makes no difference, the value of our house to hedge against something that probably won’t happen, and even if it does happen, will probably only result in a few thousand dollars of damage.
What would it cost to insure our home with a company that might actually pay out if something goes wrong? As best as my research can tell, between $3,500 and $5,000 a year. Let’s do the math from the conservative estimate: $3,500 X 15= $52.500, Over twice the value of our house. If that’s not a long string on a small kite, I don’t know what is.
Another Way for Us Simple Folk
This got me thinking, there has to be a better way for those of us wishing to live simply to not be penalized for trying to keep life within our means. First let me qualify. If you want to live the highlife and can actually afford it, insurance does make sense. The math works. If you just want a nice and comfortable place to live, it just doesn’t. Paying more than the value of your house to protect it against statistically unlikely events, (Yes, even statistically unlikely in tornado alley.) just doesn’t make sense.
When we choose to have few things and the things we choose to have are not expensive, unless we are psychic, there is no scenario in which modern day insurance makes sense. But I do propose that there is a scenario in which those of us choosing to live simply can avoid property insurance, if only the money lenders would allow it.
Again using my own home as an example, if it were to be entirely decimated by a tornado, it still wouldn’t cost the full value of the home to repair it. The pad would still be here. The connectivity to water, electric, and gas would still be here. So considering this, the cost to rebuild would be less than $20,000, even less than that to just restore the home to an unfinished yet livable state.
Loans can be taken out to build, repair, or make alterations on a home. For those of us who live in inexpensive homes, wouldn’t it be easier for lenders to just make sure our credit would allow us to qualify for one of these loans rather than require we have home insurance? I mean if lenders are really looking out for our best interests and not in bed with the insurance companies, wouldn’t that be the sensible thing to do in such a scenario?
And let’s consider this: on the off chance that weather does impact a home, it is rarely more than a couple of thousand dollars worth of damage anyway. No, we may not have this money on hand, but if there are home improvement loans we can qualify for, isn’t that more sensible than paying for home insurance when we don’t even know if something bad is going to happen?
If we choose to live simply and within our means, doesn’t that afford us the luxury of not having to pay homeowners insurance? In such a scenario, against conventional wisdom, the math bears that we are better off to roll the dice and deal with problems when they actually occur, rather than pay insurance companies large sums of money (at least relative to the worth of our home) for things that may or may not ever happen.