ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Considering Self-Insurance

Updated on April 4, 2015

Introduction

You have paid insurance on
your home for twenty years.
You have never made a claim.

Suddenly there's a disaster,
your house is substantially
damaged.

You call your agent.

Eventually he arrives,
maybe with a loss adjuster,
and after examination you learn that although you have suffered 1.2 Million dollars worth
of damage, you are only going to receive $764,000.

Terms like 'under-insured', 'excess', 'average clause' are bandied about, All you know
is that you have paid your premiums for twenty years, that what you have paid is equal
to your damage, but you are not going to get enough to cover your loss.

You are directed to your policy and in tiny go blind type is a convoluted sentence which
is deciphered to read that the Insurers will never ever pay your full loss.

But you are far luckier than those in New Orleans who were covered for hurricanes but
alas, not floods. And of course, Katrina wasn't a hurricane, it was a flood.


Understanding Insurer Menatlity

There are those who take a policy of Insurance, pay three premiums, suffer
damage, and recover a substantial amount, far more than they have paid.

That is the minority.
The extreme minority.

The majority have paid for years, never made a claim, and never recover
their full damage when they do.

To be coarse, Insurance Companies are  lucrative enterprises because
unlike Banks which have to return your money with interest, Insurance
companies never return your money, although they invest it at interest.

Although one might believe that Insurance Companies hold your money
in safe places so should always have enough to pay their clients, the
truth is, they very often can't pay when there is a major disaster.

Yes, a one off can usually gain most of the value. If there is a fire and
only your property is damaged, you might, (emphasis on might) receive
the amount you insured for.

But when there is a major disaster, such as hurricane, very few people
get what they think they paid for.

In Jamaica, for example, it wasn't until 1988 and Hurricane Gilbert did
people realise that although they had paid their premiums for years
they were not going to be recompensed for the true value.

This was due to the 'average' clause and other such tools which
meant that if you got $35,000 for $50,000 worth of damage you were
fortunate.

Understanding Risk

If you insure your home for $150,000 against flooding and your house is
flooded, it is likely that you will receive a substantial portion of that sum.

If you have insured your home for over twenty years and have never
made a claim, all that money is gone.

Although the Insurers can claim that "They stood a risk for twenty years!"
the fact nothing happened is not factored into the equation.

Your money is gone.

If you, however, had banked those premiums over twenty years, you
would have earned interest and have enough money to repair your
home.

Further, having a nice sum in the bank to act as collateral enables
you to take loans.

It is a gamble, yes, for you have to hope that there won't be a disaster
until you have saved a substantial amount of money. But the benefit
is that if there is a disaster, not only will you be compensated by a
simple withdrawal or taking a loan to the value of your deposit, but
this is Immediate. 

Unlike having to wait until the assessor arrives, until the report is
completed, until the Insurance Company gets around to writing
that cheque, you walk into the bank and there's your money


How To Self Insure

Invite various insurance companies to visit your property, make their evaluations, and set their premiums. The adjuster is pretty accurate and often has good advice.

However, you are taking no policy.
You are simply getting a free valuation.
You are getting a free schedule of payments.
For you are going to bank the premiums.

Find a nice bank or other safe financial institution, especially those which offer good long term interest. Make it mandatory that you pay your 'premiums' into the account on time as if it is an insurance policy.

Never touch those premiums. Never treat the account as a bank account.
It isn't.
It is an Insurance policy.

Every year go through the same sequence of having Insurance agents assess the value of your property and set premiums. Pay those increased premiums. If you have to hypnotise yourself into believing you can not touch that money, do so, because you can not touch that money.

At some point, if you are diligent, and there has been no 'claim' the sums in the 'insurance account' will reach the value of your house.

Further, considering you've been getting interest, you have deposited X and have X+
unlike Home Insurance where you deposit X and at the end of the year have 0.

This is why so many people in the Caribbean self insure.
They've learned their lesson.


Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      Ibere 

      3 years ago

      I wish to express thknas to you for rescuing me from this situation. Right after looking out through the online world and getting ways which are not helpful, I assumed my life was over. Living minus the answers to the issues you have fixed all through your entire short article is a serious case, and ones that could have adversely damaged my entire career if I hadn't noticed your web page. That training and kindness in maneuvering all things was helpful. I'm not sure what I would have done if I had not come upon such a solution like this. I can also at this moment look forward to my future. Thank you very much for your expert and result oriented guide. I will not hesitate to propose the blog to anybody who should have counselling about this situation.

    • qeyler profile imageAUTHOR

      qeyler 

      5 years ago

      Depends on where you are in the world. For example, in my jurisdiction, each Bank Account you have is insured for up to 600k. Hence even if the bank fails, you get back your money up to 600k.

      Hence you scatter your accounts so that your money is protected.

      Investing in Ponzi schemes, regardless of that they wish to call themselves is a non-insurable risk.

    • Sullen91 profile image

      Sullen91 

      5 years ago from Mid-Atlantic Region, US

      I agree 100% with your appraisal of the situation, no pun intended. I'm curious how/why you don't apply the same line of reasoning to retail banking -- and I only mention this because you seem to draw a distinciton between the insurance companies and the banks. And the ostensible basis for this distinction so laughable that I don't know if you're being facetious or serious. I'm interested in more of what you have to say if you really meant what you said in that part.

      Otherwise, I think this is a good hub and a worthy assay of the basic forces that drive huge industries such as insurance. "Insurance" against what? This sure isn't the kind where someone finds it in their heart to help you get back to normal after trial and misfortune. That would fit neither the true concept of insurance (as a guarantee that is actually "guaranteed"), nor the profit making business calling for everyone to give a tithe that they will be spared from calamity under the greater protection of a higher force. Oh yeah, nationwide is on your side! ;)

    • qeyler profile imageAUTHOR

      qeyler 

      7 years ago

      We are on the same page. We are taking hurricane, earthquake and food. We are talking catastrophic damage...(I didn't use the term, assuming Hurricane carried that definition). Further, when there are 100k persons and 10k suffer damage, it is not unexpected that the insurers will pay. When there are 100k persons and 94k suffer damage...even 70k, they are not going to be fully compensated.

      Hence in Jamaica, and other places which are prone to catastrophic disaster the statement you made..

      ---

      Normally, catastrophic risks are not self-insured as they are highly ( unpredictable and high in loss-value ).

      ---

      is turned upside down, as in Jamaica these are the ones that are self insured where fire, burglary, assorted other incidents will be insured for so that one might self insure the house, but have contents separately insured.

      It depends on where you live, probably, what you insure for and how you are treated by Insurance companies.

    • profile image

      Insurance person  

      7 years ago

      Firstly , I am very sorry for saying that you are stupid

      Secondly , I am concurrent with you that It is a gamble

      Please read the below text to clarify ( Self-insured Against catastrophic risks )

      Self insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.

      If self insurance is approached as a serious risk management technique, money is set aside using actuarial and insurance information and the law of large numbers so that the amount set aside (similar to an insurance premium) is enough to cover the future uncertain loss.

      Self insurance is possible for any insurable risk, meaning a risk that is predictable and measurable enough in the aggregate to be able to estimate the amount that needs to be set aside to pay for future uncertain losses. For a risk to be insurable, it must represent a future, uncertain event over which the insured has no control. Other characteristics which assist in making a risk self-insurable include the ability to price or rate the risk. If the insurable event is one in a large number of similar risks, the aggregate risk can be estimated according to the law of large numbers and the probability of that event occurring in the future can be quantified.

      Normally, catastrophic risks are not self-insured as they are highly ( unpredictable and high in loss-value ).

      Catastrophic risks are normally underwritten by the re-insurance or wholesale insurance market

      Best regards

    • qeyler profile imageAUTHOR

      qeyler 

      7 years ago

      If you were capable of reading, you would have noted the last paragraph in 'understanding risk';

      It is a gamble, yes, for you have to hope that there won't be a disaster until you have saved a substantial amount of money. But the benefit is that if there is a disaster, not only will you be paid immediately by a simple withdrawal or taking a loan to the value of your deposit.

      In countries like Jamaica which are hit by hurricanes and earthquakes many people now self-insure. They do so because they have already experienced NOT being PAID by Insurance companies.

      In America, those in New Orleans WERE NOT PAID because although they thought they were fully insured, the Insurance companies, due to the magnitude of the damage decided that the damage was 'Flood' only and that was not covered by Hurricane.

      This is not an invented article. This is not hypothesis nor speculation.

      Persons who ceased insuring with companies in 1988 but self insured were FULLY COMPENSATED WITH EXTRA when suffering damage in the 1995 Earthquake, the 2004 Hurricane, the 2007 Hurricane and the 2008 floods.

      Your house is valued at 8M. You have to pay premiums of 200k per annum. You have 1.4 M savings (at the time our interest rate was 17%) Do the Math. The earthquake was mild. Say you had 100k damage. You have the money now.

      Insurance companies would claim your house was valued at 8.5M and you were underinsured, (this is a real case and real numbers)so does not pay you 100k but 90k. You have paid 1.4M and now have to find 10k.

    • profile image

      Insurance person 

      7 years ago

      You are stupid , what if risk happen in the first year

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)