I recently learned about two different times when families lost everything when their homes burned down. These are tragic losses and, fortunately, the only things that were lost were replaceable items. No one was hurt, but they woke up the next day with nothing but the clothes on their backs and no home to go back to.
The real tragedy of these situations is that they seem to have no insurance on their properties. This means that rather than getting a hotel room, they are looking for a place to stay with friends and family until they find something else. Rather than going shopping for a few essentials while things get going, they have to ask for donations and the kindness of friends, family, and strangers for their essential living items. Rather than being able to work with contractors to remove debris and start rebuilding, all that remains is a worthless piece of property with a shell of a house.
Given the situation in which this choice has placed them, one would think that people would take this into account when choosing not to buy insurance. Here are three reasons why people do not buy home insurance when they do not have to.
- It can be expensive.
I get the point. Insurance is not cheap. Of course, it also depends on a number of factors. I live in Florida, which by all accounts is one of the most expensive states in the United States for insurance. That doesn’t make it any less valuable, especially when you come home and your house is on fire.
The cost of home insurance is based on several factors. The first three are interconnected. The size, type of construction, and the cost of rebuilding the house. This should make sense, but the bigger the house, the more expensive it will be to replace it. It just takes more materials and more time to rebuild. It also makes sense that different building materials cost more. Contractor-grade materials cost less than higher quality materials. Wood costs less than a block.
The cost is also based on the location of the house. This is true in different ways. Building material and labor costs vary from city to city or state to state. Some property estimating tools have data down to the postal code for differences in the price of materials and labor. This can also change if the loss is related to a catastrophic event, such as a hurricane or forest fire.
The location-based cost of insurance also means that some locations are more expensive to insure because of their risk of damage from different covered causes of loss. Florida residents pay more than others to ensure against hurricanes and floods. Meanwhile, in California, the risk of wildfire certainly has an impact on insurance costs. Areas of particular risk (for various causes of loss) include barrier islands, coastal areas, wildfire zones, plains, and low elevations near water bodies.
- No one forces them to do so.
Some people would not buy insurance if they felt they could get away with it. Don’t you think so? Refer to the introduction and your own brief. I assume you know at least one person or family who lost everything in a fire and didn’t have insurance. Still not convinced? What is the situation for uninsured motorists in your country? In Florida, it is estimated that about 1 in 4 drivers are uninsured, and that does not take into account other drivers who only have minimum insurance.
When there is no obligation to purchase insurance, many people will choose to avoid the monthly expense and go without. The only time coverage is mandatory is when a mortgage is in place. With this in mind, it occurs to me that people look at their home insurance with two parallel thoughts that motivate their decision not to buy it.
Nothing significant has happened so far and I don’t know of anyone who has suffered significant losses that insurance would cover. The people I know who have suffered losses have had so many worries with their insurance company that it’s really not worth paying.
I could take that money and use it for other things my family needs: paying for a car, car insurance, food, clothing, etc. I would be able to take that money and use it for other things that my family needs: paying for a car, car insurance, food, clothing, etc.
It happens. Sometimes people have to make choices and that means that if they are pushed, there are people (more than we probably want to admit) who would choose to use their money differently when no one forces them to buy insurance.
- The reputation of the insurance industry.
The insurance industry does not have the most stellar reputation for pleasing every client. This brings us back to the complexity of insurance and how people sometimes think that a loss should be covered, but it just isn’t. It also doesn’t help that insurers sometimes act badly, incorrectly, and sometimes illegally.
- My special thanks to the groups responsible for the terrible reputation of the insurance industry.
Thank you to the companies that try to cut down on their customers when what they should be doing is to stop arguing and pay the claim. You know you owe money. We know you owe money. Why don’t you just get it wrong on the service side and let it all go away later? Companies would tell us that they just want to pay what they owe and that they have to work hard to prevent fraud. I wonder what would happen if companies were a little more liberal in paying their debts. Would that reduce the fraud that they are so concerned about?
Thank you to the cover lawyers who shout from their very expensive billboards and TV ads that insurance companies are there to cheat their clients. All this by cashing big cheques (their share of the big settlement) so they can make their mansion, car, and boat payments. My question is, how much of the extra money they receive for the “client” goes back into their pockets rather than bringing more money back to the client?
Thanks also to the public experts who seem to assume that all insurance companies cheat their customers. I know you can show me file after file where this has happened, including many where it is actually true. I also know that your files are not all claim files and that most claims are settled in a way that makes customers whole, if not really happy.
It should be noted here that not all of them are companies, lawyers, or public experts. But let’s not kid ourselves, not all companies, lawyers, or public experts are the good citizens and neighbors they want the rest of us to think they are.
At the end of the day, even if these are reasons not to buy home insurance, there is a very good reason to buy home insurance. When the fire happens, no one wants to have to look at their family in the eye and wonder what we’re going to do now?