Ending Home Insurance

[workwheniwantto]

Anyone (mortgageless and) decided to drop their home insurance? 

http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

I will have (after foreclosure ends this month) a rental property worth about $30k (no mortgage, in a separate LLC) and the home insurance quotes I have seen are near $1k/year.  It just seems like 3% annually is way too high to spend on insurance, so I am planning to forego it.  Somehow it seems sacrosanct.

Also, anyone ever stumble across what the approximate % of insurance goes to paying claims (i.e. after taking out for profit and overhead)? 

Edited out the two super-relevant typos... placing palm over face...

[Another Reader]

Protecting your assets requires liability insurance.  LLC's are not impenetrable.  An injured party's attorney is going to spend time and money trying to make you personally liable.

Fire insurance is optional.  Is the property in a warzone?  Does it not meet code?  You should be able to shop around and get better pricing if the answers are "no."  It's going to cost far more than $30k to rebuild the structure, so look at how losses are settled in a claim.

[arebelspy]

Anyone (mortgageless and) decided to drop their home insurance? 

http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

I will have (after foreclosure ends this month) a rental property worth about $30,000k (no mortgage, in a separate LLC) and the home insurance quotes I have seen are near $1k/month.  It just seems like 3% annually is way too high to spend on insurance, so I am planning to forego it.  Somehow it seems sacrosanct.

Also, anyone ever stumble across what the approximate % of insurance goes to paying claims (i.e. after taking out for profit and overhead)?

I'm assuming the 30,000k was a typo, and you don't actually mean a 30 million dollar rental (but if ou did, yes, insure it!)

On the other hand if I assume 30,000 for the value of the rental, there's another issue: you said insurance of 1k/month amounting to 3%.. 1k/mo, or 12k/yr on 30k would be 40% to insurance.

If that's a typo too, and it's 1k/yr on 30k rental, then the numbers make more sense.  Assuming that, it's really a question of cost vs reward and risk, just like any other insurance question.  Can you afford to self-insure?

Try this thought experiment: you get the full house covered either way, but you can have a $1000 annual premium, $500 deductible... Or you can have a $0 annual premium, $30,000 deductible.

[arebelspy]

Protecting your assets requires liability insurance.  LLC's are not impenetrable.  An injured party's attorney is going to spend time and money trying to make you personally liable.

Fire insurance is optional.  Is the property in a warzone?  Does it not meet code?  You should be able to shop around and get better pricing if the answers are "no."  It's going to cost far more than $30k to rebuild the structure, so look at how losses are settled in a claim.

Absolutely agree about liability insurance.. I was assuming a fire policy in my above hypothetical.  Umbrella insurance is great, but talk to your agent about how it's affected due to the LLC.

[Another Reader]

My bet is he can get a $2000 deductible for under $400 if he shops and the answers to my questions are no.  On the continuum of risk vs. cost, I would choose something like that, and have the basic liability included.

[workwheniwantto]

you can have a $1000 annual premium, $500 deductible... Or you can have a $0 annual premium, $30,000 deductible.

Of those two, I definitely choose the latter.  Though it is a condo (part of a building) so I am not sure the top end of liability ends at my purchase price.

Protecting your assets requires liability insurance.  LLC's are not impenetrable.  An injured party's attorney is going to spend time and money trying to make you personally liable.

Fire insurance is optional.  Is the property in a warzone?  Does it not meet code?  You should be able to shop around and get better pricing if the answers are "no."  It's going to cost far more than $30k to rebuild the structure, so look at how losses are settled in a claim.

Not a warzone, though priced as one, since it is a condo and it is unmortgageable currently.  Will have to meet code before I can rent it. 

The LLC is in my (IRA LLC within my) IRA.  So I am guessing any penetration would stop at the IRA?  I guess I can afford to lose those funds - about 2 years wages - if multiple bad things occur (claim incident that then penetrates the LLC barrier). 

[arebelspy]

A condo I'd worry a lot less about the fire policy - at most you're replacing the interior if it's gutted from fire.. the HOA should have insurance on the building as a whole, I'd think.  Check the HOA bylaws and look into their insurance, as well as what they require from you.

Normally retirement assets can't be touched in a liability lawsuit, but I'm not sure how that works if the LLC is in an IRA and is breached.. Consult a lawyer.

You very well could be personally liable, however, so I'd still recommend some sort of umbrella policy (which itself will likely require you to carry an individual policy on the condo).

[Another Reader]

Your condo docs probably specify what insurance you have to maintain. 

If you have a fire, you will be sued by the HOA and the other owners.  Your IRA likely offers zero protection.  You own the IRA.

In your shoes, I would have fire and liability insurance, independent of the HOA requirements.

[workwheniwantto]

Check the HOA bylaws and look into their insurance, as well as what they require from you.

Will do that.  I know they do not require insurance - in fact I asked them about that a few months ago to verify, and my memory is fuzzy though I think they said it was against state law to require insurance on condos. 

Your IRA likely offers zero protection.  You own the IRA.

Hmm.  I am concerned by the potential accuracy of the first statement, even if the DOL strongly disagrees with the second statement.

[Gerard]

I'd be surprised to find such high premiums for liability-only insurance (which is all my condo corp requires me to carry). One of those policies usually sold to renters should cover you... the lowest I've ever paid for that is about $16 a month (which also gave me theft insurance with a very high deductible, as well as covering my overflowing bathtub dripping into downstairs).

I do know that going un-insured (or "self-insured") is very common in rural Newfoundland, where I live part time. But people there usually build the houses themselves, and if the house burns down they can usually rebuild themselves with the help of family and neighbours (there's no building code or inspectors out there!).