MMM Decides to Self insure his house?

[Fredster4]

I am new and just chunking away at reading MMM legacy blog posts. In one he posts his expenses for the year and reveals he is paying $0 for home insurance, saying he has decided to "self insure" his home because of the low chance of anything happening and if it did, he could recover from it.

Seriously? The thought of doing this would make me very nervous.

His house is worth something in the vicinity of $400K, I think. How could this be "easily recovered from?"

I know only a portion of that value is the actual house, and the land and foundation would not be destroyed in a fire, but I'm curious if there are more of you out there, self insurers that it.

Sounds scary but maybe I just need to warm up to the idea.

Thanks in advance.

[Paul der Krake]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

[undercover]

He already has way more than enough to live "forever" at his spending level and is still accumulating an outrageous amount like a madman. For him it makes little sense to have insurance.

But, for anyone else, I'd imagine it's ~$60/mo well spent - even though, yes, it's highly unlikely to begin with that you'll ever need it for anything truly catastrophic.

[Cromacster]

I do wonder at which point he decided to self insure.  When he retired he had a paid off house and a 600-800k NW.  I wonder if he was self insuring at this point as well.

[BuzzardsBay]

I don't care how much money you have, saving $80 or $100 dollars a month to risk a 400k asset doesn't make sense. 

[Ricksun]

I don't care how much money you have, saving $80 or $100 dollars a month to risk a 400k asset doesn't make sense. 

Insurance companies make a profit, which means that the $80-$100 is more than average cost of all of the claims, so in a strictly math/risk standpoint, it does make sense.  It might just not make sense in your scenario.

Ricksun

[Chris22]

Homeowners insurance is not just about insuring the structure too though, it's about liability protection. Say mini-MMM has a friend over and they get into dad's power tools and someone loses a finger. Even if the kid's parents are "cool" MMM might still find himself sued by their insurance company. And suing a guy with a famous blog and who goes on the Internet and brags about how much money he has?  Hoo-boy.

And doesn't MMM AirBnB his house when he's out of town?  Without insurance (not sure what Airbnb provides?)?  That would be a special kind of stupid. And all to save <$100/mo?  From a guy who brags about his millions?

Yeah, okay.

[Fredster4]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

I'm sorry - on a blog with no advertising? How does this happen again?

[Chris22]

I don't care how much money you have, saving $80 or $100 dollars a month to risk a 400k asset doesn't make sense. 

Insurance companies make a profit, which means that the $80-$100 is more than average cost of all of the claims, so in a strictly math/risk standpoint, it does make sense.  It might just not make sense in your scenario.

Ricksun

They have a risk pool of X. You have a risk pool of 1.  That's not an apples to apples comparison.

[Paul der Krake]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

I'm sorry - on a blog with no advertising? How does this happen again?

There is advertising on the blog and he gets referral fees from services he recommends. There are also ads on the forums, which gets hundreds of thousands of page views per day. This community may feel small at times, but it's really not. As I type this at 9:20 AM Eastern while a good chunk of the country is still asleep there are 500 people online.

[EscapeVelocity2020]

I also get the impression that he spends a lot more time at home or in the general vicinity than most of us do (building a studio, home schooling, blogging).  In such a case, it is probably less risky that your house would completely burn down while you're not paying attention.  He also has the skills to repair and rebuild it himself.  He also paid it off early so has several decades to arbitrage the insurance savings vs. risk of loss.  And he has plenty of income and net worth if he just wants to walk away from the smoking rubble and buy another house.  He also isn't beholden to a job, so he could move whenever and wherever he wants, and spend his time rebuiding.  For this and many more reasons, I would say that his situation is unique and not general advice that we should all apply willy nilly.  I fall in the camp that the home insurance market works sufficiently well for me to keep my mortgage, shop around, and sleep well at night that I am neither being gouged to have it nor risking a significant, unmitigated financial setback if a hurricane, fire, tornado, hail, etc. damages my home.

[Fredster4]

From a guy who brags about his millions?

I have not yet been exposed to this and it would turn me off if I had. I think one of his special gifts is always sounding like he's just a regular guy. (Except when I saw a picture of him towing a washing machine behind a bicycle. You would get thrown in a loony bin if you did that in my town, not to mention killed by a passing truck driver who didn't know how wide his trailer was.)

So if all that is true, why wouldn't he just give up the stoicism, buy a yacht and live like his money allows? All this mustachianism is not for people with lots of money, it's for those of us who will never be in the top 1% but still want to live a happy, free life without having to work until they're put in the grave. You know he's thought about it. Why else would he post the famous April fools post with the his and her's Teslas?

[beastykato]

It still doesn't make sense. 

The cost of insurance is very minimal. 

Everyone keeps saying he could just walk away, blah, blah ,blah.

House burns down....

Scenario 1.)  He walks away....400k house gone,  400k to build a new house, 800k gone. Land value not factored here, but even it was and he sold the land, it would be a loss of the structure value. 

Scenario 2.)  Insurance rebuilds house for 130+% value. No loss. He still wants to walk away?  Sells House for $520,000.  Builds new house somewhere for 400k.  120k Profit.  WIN.

Very specific examples, but Keep your insurance.  Not sure what the thought process is here to get rid of such a minimal expense.

Not to mention the other liability issues people have brought up.

[RobFIRE]

It's very simple. If you own a TV worth $100 and have $1000 in savings, you could afford the loss of the TV, so could be comfortable not having it insured.

For MMM it's house rather than TV, and figures more like $400k and $2M or more. But it's the same point, you don't need insurance if you can afford the loss.

Most people clearly could not afford the loss of their house, so do need the insurance.

Secondly in MMM's case he likes DYI so could presumably rebuild his own house after e.g. destroyed by fire for rather less than its current value (I can't think of a realistic scenario whereby the land the house is on gets destroyed), so his maximum loss could be well less than $400k.

(The point about liability (e.g. fire in your house leads to fires in whole neighbourhood) could mean that you still have to have a basic level of insurance.)

[Cromacster]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

I'm sorry - on a blog with no advertising? How does this happen again?

There is advertising on the blog and he gets referral fees from services he recommends. There are also ads on the forums, which gets hundreds of thousands of page views per day. This community may feel small at times, but it's really not. As I type this at 9:20 AM Eastern while a good chunk of the country is still asleep there are 500 people online.

Suggested Reading which details one method of revenue for the website.

I Just Gave Up $4000 Per Month to Keep My Freedom of Speech

If you believe the websites that calculate an estimated worth of other websites, www.mrmoneymustache.com is worth around 2 million.

[cheapass]

Very specific examples, but Keep your insurance.  Not sure what the thought process is here to get rid of such a minimal expense.

Not to mention the other liability issues people have brought up.

Probability x Loss = Expected loss

The probability of a total loss on your home is exceptionally low. When you pay your insurance premiums, year after year, you're essentially buying lottery tickets that the insurance company profits off of. Lottery tickets are not a good investment.

Insurance companies make profits and their risk models which determine your premiums are set up to ensure that they make money. The house always wins. On average (all customers x all premiums) - (all claims x average claim cost) you will lose money, and the insurance company will profit off of that money.

[RedmondStash]

It still doesn't make sense. 

The cost of insurance is very minimal. 

Everyone keeps saying he could just walk away, blah, blah ,blah.

House burns down....

Scenario 1.)  He walks away....400k house gone,  400k to build a new house, 800k gone. Land value not factored here, but even it was and he sold the land, it would be a loss of the structure value. 

Scenario 2.)  Insurance rebuilds house for 130+% value. No loss. He still wants to walk away?  Sells House for $520,000.  Builds new house somewhere for 400k.  120k Profit.  WIN.

Very specific examples, but Keep your insurance.  Not sure what the thought process is here to get rid of such a minimal expense.

Not to mention the other liability issues people have brought up.

The most likely scenario by far is Scenario 3: The house does not burn down. No one loses a finger in the workshop and sues MMM. All those insurance premiums are just flushed down the toilet.

It's the reverse of the argument for gambling: If I keep putting in my nickels and pulling the lever, I might *not* have to pay out $100 someday.

People tend to focus on the worst-case scenario as if it has already happened, and plan accordingly. But that worst-case scenario is rare. Even a reduced worst-case scenario, like the garage burning down or a tree hitting the living room roof, is rare.

[Chris22]

But you have to weigh this all against the comparatively small cost of insurance. Gold-played homeowners insurance is typically ~$1000/yr for the average house, and that's before you start raising deductibles, etc. I Understand the low likelihood of Bad Things happening, but when you can insure against Bad Things for very little money, why would you not?  It doesn't take a total catastrophe to eat up a decade or two of not paying insurance premiums.

I also think the liability portion here is being very clearly downplayed or ignored, especially given MMM's relative notoriety and broadcasting of his wealth.

[cheapass]

But you have to weigh this all against the comparatively small cost of insurance. Gold-played homeowners insurance is typically ~$1000/yr for the average house, and that's before you start raising deductibles, etc. I Understand the low likelihood of Bad Things happening, but when you can insure against Bad Things for very little money, why would you not?  It doesn't take a total catastrophe to eat up a decade or two of not paying insurance premiums.

You can use the same argument to promote insuring your TV, and your toaster, and your cell phone, and all the pens in your desk drawer, and your calculator, and...

Assuming the probability of loss is low, and over the long term you're better off investing those insurance premiums, the only difference is scale. MMM happens to be wealthy enough that losing a house, to him, is probably like losing a car or TV to most people. Still makes insurance a shitty investment (from a mathematical/financial perspective).

[Paul der Krake]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

I'm sorry - on a blog with no advertising? How does this happen again?

There is advertising on the blog and he gets referral fees from services he recommends. There are also ads on the forums, which gets hundreds of thousands of page views per day. This community may feel small at times, but it's really not. As I type this at 9:20 AM Eastern while a good chunk of the country is still asleep there are 500 people online.

Suggested Reading which details one method of revenue for the website.

I Just Gave Up $4000 Per Month to Keep My Freedom of Speech

If you believe the websites that calculate an estimated worth of other websites, www.mrmoneymustache.com is worth around 2 million.

That's a very old post. He did state that the blog does rake 400k/year in the New Yorker profile published a couple months back.

Besides, website valuations are very hard to come up with and justify, one way or the other. Income is much more telling.

[Chris22]

But you have to weigh this all against the comparatively small cost of insurance. Gold-played homeowners insurance is typically ~$1000/yr for the average house, and that's before you start raising deductibles, etc. I Understand the low likelihood of Bad Things happening, but when you can insure against Bad Things for very little money, why would you not?  It doesn't take a total catastrophe to eat up a decade or two of not paying insurance premiums.

You can use the same argument to promote insuring your TV, and your toaster, and your cell phone, and all the pens in your desk drawer, and your calculator, and...

Assuming the probability of loss is low, and over the long term you're better off investing those insurance premiums, the only difference is scale. MMM happens to be wealthy enough that losing a house, to him, is probably like losing a car or TV to most people. Still makes insurance a shitty investment (from a mathematical/financial perspective).

MMM is wealthy but not that wealthy. I think he's stated his NW is in the $4M ballpark. Losing a $400k house is still a substantial chunk of that, it's not like losing a TV. Which, BTW, my TVs are also insured...under my homeowners insurance.

[cheapass]

MMM is wealthy but not that wealthy. I think he's stated his NW is in the $4M ballpark. Losing a $400k house is still a substantial chunk of that, it's not like losing a TV. Which, BTW, my TVs are also insured...under my homeowners insurance.

Still a bad investment over the long term considering the low probability of loss occurring.

[Chris22]

MMM is wealthy but not that wealthy. I think he's stated his NW is in the $4M ballpark. Losing a $400k house is still a substantial chunk of that, it's not like losing a TV. Which, BTW, my TVs are also insured...under my homeowners insurance.

Still a bad investment over the long term considering the low probability of loss occurring.

Right up until it isn't. I know at least two people whose insurance companies have paid out 7 figures for things that would not be considered negligence.

[cheapass]

Right up until it isn't. I know at least two people whose insurance companies have paid out 7 figures for things that would not be considered negligence.

The lottery is a bad investment... right up until it isn't

[Cromacster]

MMM has a blog that generates 400k/year pretty much on autopilot at this point.

He could lose his house every 3 years without putting a dent in his savings.

I'm sorry - on a blog with no advertising? How does this happen again?

There is advertising on the blog and he gets referral fees from services he recommends. There are also ads on the forums, which gets hundreds of thousands of page views per day. This community may feel small at times, but it's really not. As I type this at 9:20 AM Eastern while a good chunk of the country is still asleep there are 500 people online.

Suggested Reading which details one method of revenue for the website.

I Just Gave Up $4000 Per Month to Keep My Freedom of Speech

If you believe the websites that calculate an estimated worth of other websites, www.mrmoneymustache.com is worth around 2 million.

That's a very old post. He did state that the blog does rake 400k/year in the New Yorker profile published a couple months back.

Besides, website valuations are very hard to come up with and justify, one way or the other. Income is much more telling.

Yea, it's an old post.  It was more of a response to the person questioning how he was making money with minimal advertising.  This post shows at one point he was making 48,000/yr from referrals from one credit card.  Just showing that the CC referral was one source.  There are other credit cards, other ads, other referrals etc.

And 2mm would be a rough valuation for 400k in income, so that website isn't to far off.

[EmpireOfDirt]

But you have to weigh this all against the comparatively small cost of insurance. Gold-played homeowners insurance is typically ~$1000/yr for the average house, and that's before you start raising deductibles, etc. I Understand the low likelihood of Bad Things happening, but when you can insure against Bad Things for very little money, why would you not?  It doesn't take a total catastrophe to eat up a decade or two of not paying insurance premiums.

--snip--

 Still makes insurance a shitty investment (from a mathematical/financial perspective).

This is a fascinating statement. Never thought of insurance as an investment before.

If you want to optimize everything from a financial perspective, surely you would:

1. Have no emergency fund
2. Keep every spare cent invested in 100% stocks (or 100% emerging markets small cap stocks, or 100% AAPL if you wanted to get really ridiculous)
3. Have no insurance of any kind

And do lots of other things that don't clearly maximize the upside.

But many people choose to trade some of that upside:

1. By having a reasonable amount of insurance
2. By having an emergency fund
3. By having an asset allocation that includes other categories besides stocks

For some protection against the bad things that happen in life, which is not just limited to a total loss on your house.

[FIPurpose]

I feel like a lot of people here are trying to say math things without actually doing any math. And comparing home insurance to the lotto is dumb. If anyone really believes that insurance is like the lotto, well then I guess we should all just stop paying insurance because we're all morons handing money to billionaires.

Granted that Colorado is a pretty safe state for homes, so I don't feel like there is a huge potential for loss. But there are a lot of big ticket items that can be covered. (But hopefully MMM has personal liability insurance to protect his investments and other assets.)

But let's make some extremes here. If home insurance for a $400k house was $1/yr. Everyone would be saying that MMM is an idiot for not taking that deal. It doesn't even matter if he can self-insure or not, a $1/yr premium is a smokin deal that would pay itself off likely 1000's of times over. So it's not that once you have enough money you just shouldn't bother. You should evaluate for yourself what is worth it, and what isn't.

I don't take C&C insurance on my car because the additional cost of about $300-400 per year pays itself off in 4-5 years, and since it would not be financially devestating to my bottom line to take that hit, I feel comfortable taking that bet. So if Home insurance were $20k/yr, I think we would all agree that the odds of that paying off are extremely low and is not worth it.

 And yes a lot of insurance companies make a lot of money. There's also a lot that don't make money, especially after a big disaster. Which is why insurance companies purchase reinsurance, because there are times when they don't get expected loss right. Actuary tables are not perfect; both parties in the exchange are taking a bet.

Now I'm going to guess that home insurance is going to cost about $1500/yr for him. And let's just do some expected loss calculations on just total loss of home (so it's not the full benefit of the insurance, but it's easier to examine it in isolation)

$400k * (chance of total loss) = $1500

So here we're estimating the chance of total home loss to be about .3%. Or in other words, you're paying .3% of the value of your home to protect the other 99.7% each year.

Since MMM's only likely source of loss is Fire (maybe hail, but that wouldn't cause total loss). I looked up the Fire statistics. There were 365,500 house fires last year and 124.6 million homes. That means about .29% of homes each year catch on fire. Seeing as home insurance covers more than just house fires, if his home insurance is $1500/yr, I would definitely say he is making a bad deal, and being on the wrong side of that deal is a huge loss. MMM's wealth status or not, you take this deal.

[Yankuba]

Just because he says he doesn't use insurance doesn't mean it's true. He turned frugality - which is as old as the bible - plus the 4% rule into a $400k income stream. He has to keep the story going and figure out how to keep everyone believing he is only spending $25k per year. So he tells everyone he saves a few thousand per year by self insuring. But that doesn't mean it's true.

I like MMM and the forums but I don't believe everything he writes is true - not by a long shot. I'm sure he has a homeowner's policy (for the liability coverage) and an umbrella policy. As others have noted he is a wealthy public figure so he needs to protect his assets from lawsuits.

[Jack]

If you want to optimize everything from a financial perspective, surely you would:

1. Have no emergency fund
2. Keep every spare cent invested in 100% stocks (or 100% emerging markets small cap stocks, or 100% AAPL if you wanted to get really ridiculous)
3. Have no insurance of any kind

I do two out of three of those...

The key to remember, though, is that you're actually trying to maximize risk-adjusted return. If you can afford not to hedge against a particular risk, then not hedging it will tend to maximize return. However, if the risk can wipe you out (or at least, cause you significant problems) then it becomes worth hedging against it.

For example:

- I can do without an emergency fund because my high cash flow (relative to spending), large available credit, parents who could bail me out in an emergency, and ability to withdraw Roth IRA principal can all compensate for it.
- I am 100% stocks because my time horizon is very long and thus I don't consider "volatility" to be a risk. (However, I'm open to the idea of adding a small amount of bonds if I could be convinced that they could increase overall returns, or hedge against some other kind of risk -- e.g. sequence of returns risk -- that I might care about.)
- I do not carry collision or comprehensive insurance on my cars, because they're only worth a couple thousand dollars each and I could afford to replace them out-of-pocket. However, I do carry insurance on my house because I can't yet afford to replace that out-of-pocket (and because the mortgage requires it), and I carry very good liability insurance on both my cars and my home, including an umbrella policy, because that's the kind of risk that could wipe me out no matter how high my net worth is.

[EscapeVelocity2020]

Just because he says he doesn't use insurance doesn't mean it's true. He turned frugality - which is as old as the bible - plus the 4% rule into a $400k income stream. He has to keep the story going and figure out how to keep everyone believing he is only spending $25k per year. So he tells everyone he saves a few thousand per year by self insuring. But that doesn't mean it's true.

I like MMM and the forums but I don't believe everything he writes is true - not by a long shot. I'm sure he has a homeowner's policy (for the liability coverage) and an umbrella policy. As others have noted he is a wealthy public figure so he needs to protect his assets from lawsuits.

I think we should demand to see his tax returns!  :)

[EmpireOfDirt]

If you want to optimize everything from a financial perspective, surely you would:

1. Have no emergency fund
2. Keep every spare cent invested in 100% stocks (or 100% emerging markets small cap stocks, or 100% AAPL if you wanted to get really ridiculous)
3. Have no insurance of any kind

I do two out of three of those...

The key to remember, though, is that you're actually trying to maximize risk-adjusted return. If you can afford not to hedge against a particular risk, then not hedging it will tend to maximize return. However, if the risk can wipe you out (or at least, cause you significant problems) then it becomes worth hedging against it.

For example:

- I can do without an emergency fund because my high cash flow (relative to spending), large available credit, parents who could bail me out in an emergency, and ability to withdraw Roth IRA principal can all compensate for it.
- I am 100% stocks because my time horizon is very long and thus I don't consider "volatility" to be a risk. (However, I'm open to the idea of adding a small amount of bonds if I could be convinced that they could increase overall returns, or hedge against some other kind of risk -- e.g. sequence of returns risk -- that I might care about.)
- I do not carry collision or comprehensive insurance on my cars, because they're only worth a couple thousand dollars each and I could afford to replace them out-of-pocket. However, I do carry insurance on my house because I can't yet afford to replace that out-of-pocket (and because the mortgage requires it), and I carry very good liability insurance on both my cars and my home, including an umbrella policy, because that's the kind of risk that could wipe me out no matter how high my net worth is.

Fair enough Jack - nice perspective. I had a similar attitude to you when I was younger as well.

 I will refrain from asking whether you think you're lucky - I'm enjoying the other thread too much :)

[seattlecyclone]

I don't carry collision insurance on my car, because the car is cheap enough relative to my net worth that a total loss wouldn't really set me back that much. I can't say that about my house. However if I had 10 times as much money as I do now I could totally see myself making the choice not to insure against that loss. However I can't see myself dropping the liability piece no matter how my net worth grows. We have too many people suing each other in this country and the payout can potentially be unboundedly high.

[moof]

I guess it is like having your money in the stock market, nothing is risk free.

If your house is valued about at your net worth or less you could go bust through just one event (i.e. major sequence risk), but if it is only 10% of your net worth you can take the hit should it happen.  Nobody here insures their VTSAX do they?  What would you do it that went down 20% tomorrow?

I never never bought extended warranties, and tend to keep higher than average deductibles.  I am slowly coming around the the idea that car sized things can be safely self-insured for their value (liability is a different story).  If I had my retirement 150% funded I could see myself only having an umbrella policy on the house.  I would then not have to worry about someone else telling me when to replace my roof, or when to trim back trees touching my house, etc.

[zephyr911]

Scenario 1.)  He walks away....400k house gone,  400k to build a new house, 800k gone. Land value not factored here, but even it was and he sold the land, it would be a loss of the structure value. 

That's.... not how that works.
The only loss is the $400K house.
After spending $400K to build or buy a new house, you still have a house worth $400K.

[Chris22]

I guess I don't see how one could be so rich that they can reasonably self insure their house but also in a position where NOT paying the insurance could have a meaningful impact on your finances. I don't care how rich you are, paying out of pocket for something that costs hundreds of thousands stings when it could have been avoided for a grand a year. For a car, I get it, $1k/yr to insure a $5k car means you are in the red after only 5 years. But a house, you could pay $1k/yr for 50 years and stil come out ahead after even a non-catastrophic claim of the right kind.

[dougules]

Homeowners insurance is not just about insuring the structure too though, it's about liability protection. Say mini-MMM has a friend over and they get into dad's power tools and someone loses a finger. Even if the kid's parents are "cool" MMM might still find himself sued by their insurance company. And suing a guy with a famous blog and who goes on the Internet and brags about how much money he has?  Hoo-boy.

And doesn't MMM AirBnB his house when he's out of town?  Without insurance (not sure what Airbnb provides?)?  That would be a special kind of stupid. And all to save <$100/mo?  From a guy who brags about his millions?

Yeah, okay.

What is the most he could potentially lose with liability?  If he can cover the max liability without any serious hardship, then it doesn't make sense just to make the insurance company rich.  Same principle applies whether it's a $100 phone or a potential $2M lawsuit. 

As for just the value of the house itself, it makes no sense at all for him to pay an insurance company for that.  He could buy his house again at least 5 times over. 

[Captain FIRE]

Homeowners insurance is not just about insuring the structure too though, it's about liability protection. Say mini-MMM has a friend over and they get into dad's power tools and someone loses a finger. Even if the kid's parents are "cool" MMM might still find himself sued by their insurance company. And suing a guy with a famous blog and who goes on the Internet and brags about how much money he has?  Hoo-boy.

And doesn't MMM AirBnB his house when he's out of town?  Without insurance (not sure what Airbnb provides?)?  That would be a special kind of stupid. And all to save <$100/mo?  From a guy who brags about his millions?

Yeah, okay.

People don't sue those who are judgment proof (have no money) that is true, because it's a waste of resources to squeeze that rock - you lose more in attorney's fees.  Yes, he has more money to pay for a judgment against him than the average person.  But you don't get a large judgment simply because you are rich.   You still have to prove things such as liability & harm.  Someone is severely disabled on his property or dies and it's his fault, yes, it could be a large judgment.  (Frankly, many people who are insured likely don't have enough insurance to cover these types of judgments.  Do you carry more than $2 million in insurance?  And many people may not read their policy to know what's excluded.  If you drink/serve alcohol, you may not be covered at all in those situations.)

But very rarely do you even encounter these severely disabling situations.  An unshoveled sidewalk, a crack on your driveway someone trips over, or even a finger lost in an power tool is just not that expensive.  (Only one of the cited cases had an award of over $1 million, with most being reduced for the plaintiff - the operator's - error http://www.newyorkinjurycasesblog.com/2009/06/articles/amputation-injuries/finger-amputation-cases-pain-and-suffering-awards-range-from-85000-to-2000000/)

If you have a pool in your backyard, I'd recommend carrying higher insurance though.

[zephyr911]

Homeowners insurance is not just about insuring the structure too though, it's about liability protection. Say mini-MMM has a friend over and they get into dad's power tools and someone loses a finger. Even if the kid's parents are "cool" MMM might still find himself sued by their insurance company. And suing a guy with a famous blog and who goes on the Internet and brags about how much money he has?  Hoo-boy.

And doesn't MMM AirBnB his house when he's out of town?  Without insurance (not sure what Airbnb provides?)?  That would be a special kind of stupid. And all to save <$100/mo?  From a guy who brags about his millions?

Yeah, okay.

AirBnB provides $1M for covered liabilities.

I got $1M in personal umbrella when I started doing real estate, for less than $20/mo. I think it's $24 and change now.

[acroy]

Insurance is a bet against yourself.

Insurance companies are pure statisticians. They play the numbers in the quest for profit. Don't buy any form of insurance unless you truly cannot afford the loss/risk in question.

[Jack]

I guess I don't see how one could be so rich that they can reasonably self insure their house but also in a position where NOT paying the insurance could have a meaningful impact on your finances.

In other words, you're arguing that the decision to forego insurance falls below the point of diminishing returns. I think that's a reasonably persuasive argument; however, for MMM himself it would violate the principle of constant optimization, so I can see why he would act differently.

Insurance is a bet against yourself.

Insurance companies are pure statisticians. They play the numbers in the quest for profit. Don't buy any form of insurance unless you truly cannot afford the loss/risk in question.

Or unless you have some (good!) reason to believe you know better than the actuaries.

[secondcor521]

Since MMM's only likely source of loss is Fire (maybe hail, but that wouldn't cause total loss). I looked up the Fire statistics. There were 365,500 house fires last year and 124.6 million homes. That means about .29% of homes each year catch on fire. Seeing as home insurance covers more than just house fires, if his home insurance is $1500/yr, I would definitely say he is making a bad deal, and being on the wrong side of that deal is a huge loss. MMM's wealth status or not, you take this deal.

I don't know for sure, but I would imagine that the majority of those house fires did not cause a total loss.  Most house fires IIRC are caused by burning candles left unattended, or people smoking in bed and falling asleep.  With fire stations nearby (I can't recall if MMM lives in an urban setting, but I think he does) and neighbors, the house is only going to be on fire for a few minutes and cause a few thousand to maybe $20K in damage, part of which would be absorbed by the high deductible that MMM would carry if he carried insurance at all.  I suspect total losses due to fire are more typical in mobile home parks or in very rural areas with low fire department coverage and very slow response times.

[neil]

While one person may argue against insurance, they may argue for 3% WR even though that has never been provably required in the last 100 years.  Home losses tangibly occur and can even be considered an "expense" based on statistical possibility of cost.

Safety is an Expensive Illusion is an excellent post.  But there is a behavioral component here that some people can't get over.  It's fair for individuals to address it the way they want, even if they fully recognize that it isn't financially optimal.  (But it's best to be honest and recognize when you are paying for safety.)

[TheOldestYoungMan]

There is a ton of stuff you can do to mitigate your risk of a fire in the home.

1.  Don't have extra stuff in the house.  Mustachianism would tend to support this, it depends a bit on how you implement MMM's thermal mass idea.  But it also includes stuff like hygiene, taking out the trash in a timely manner, and the nature of stuff you don't think of as extra (check out my collection of vintage explosives!).

2.  Do not use substandard electrical equipment.  This is a risk factor as I see it with mustachiansim, because of welcoming used stuff.  You really don't know the full history of that used lamp you bought.  This is also a risk factor because of the DIY mentality.  It is very easy to do electrical work correctly, it is very easy to do it improperly.  The adoption of the national electric code overwhelmingly reduced the amount of structural fires in the US.  It is the single greatest improvement to reducing fires.  Poorly installed/maintained electrical installations are why we did not see a significant reduction in fire when we went from using open flames for lighting to light bulbs.

3.  Smoke detectors in good working order installed in appropriate places reduce the damage you get from a fire.

4.  Home fire sprinkler systems reduce the damage you get from a fire.

5.  Live in a deed restricted area with good code enforcement.  You can do everything right, and if every house in the neighborhood has those pretty wooden shingles the whole neighborhood burns down.

6.  Good garage upkeep with respect to storage and cleanup of liquids and rags and solvents and such.

All that being true, thousands of times a year someone's house burns to the ground despite all equipment being in good working order, no history of failures with the equipment, no sign of neglect by the owner, and no failure of the fire department to respond in a timely manner.

The best of appliances can fail suddenly.  The most diligent person occasionally leaves a stove on, and almost none of us clears out our dryer vents often enough.  Then there's the serial firestarters and the everpresent natural phenomenon of lightning.

I had a smoke detector catch fire once.  The actual alarm went into alarm after setting itself on fire.

I wouldn't advise not having fire insurance, and if you wanted to optimize the cost I would suggest residential fire sprinklers and a monitored alarm system as a way to reduce your insurance premium, but if someone was inclined towards diligent maintenance of these aspects of their homestead (and MMM strikes me as an "organizes the garage before, during, and after every project" type) then it is probably not that huge a risk to take.

[zephyr911]

I had a smoke detector catch fire once.  The actual alarm went into alarm after setting itself on fire.

This is the funniest thing I've heard all day.

[Vorpal]

Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

[Chris22]

Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

I'll trade your insurance + property tax bill for mine ;)

Hint: $1k/yr insurance and close to $9k/yr property tax

[Jack]

Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

Why should you be jealous of us? I'm willing to bet that the risk differential is even higher than the cost differential, so we're subsidizing you. (And the subsidy gets even bigger once you consider that our tax dollars also pay for FEMA!)

[Vorpal]

author=Winston link=topic=62387.msg1255816#msg1255816 date=1475790149]
Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

I'll trade your insurance + property tax bill for mine ;)

Hint: $1k/yr insurance and close to $9k/yr property tax

Property taxes are about $4500/yr. so you'd save a little, but not as much as you might think. Besides, at least property taxes go towards useful things in your community. Insurance payments go to line the pockets of the racketeers... err, I mean insurance companies.

[Vorpal]

Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

Why should you be jealous of us? I'm willing to bet that the risk differential is even higher than the cost differential, so we're subsidizing you. (And the subsidy gets even bigger once you consider that our tax dollars also pay for FEMA!)

Oh thank you, good sir, for subsidizing me!

*grovel grovel*
*licks boot*

You wanna swap insurance bills? Didn't think so. That's why I'm jealous. Even if you are subsidizing me*, it's still better to pay a fraction of what I pay. It's not like I get some extra-special experience living here in Satan's anus.

*unsubstantiated

[Chris22]

author=Winston link=topic=62387.msg1255816#msg1255816 date=1475790149]
Just popping in to proclaim my jealousy of those of you with $60-$80-$100/mo. insurance policies. Here in hurricane alley, I pay ~$3200/yr for basic + $750/yr for flood, which comes to around $330/mo. This is on a ~$200k house. Yes, I've shopped around 😕 (But it may be time to try again)

I'll trade your insurance + property tax bill for mine ;)

Hint: $1k/yr insurance and close to $9k/yr property tax

Property taxes are about $4500/yr. so you'd save a little, but not as much as you might think. Besides, at least property taxes go towards useful things in your community. Insurance payments go to line the pockets of the racketeers... err, I mean insurance companies.

I'm in IL, so I'm not convinced my tax dollars are going to anything productive.