Just as high healthcare costs have prompted millions of Americans to forgo health insurance, now some homeowners are skipping home coverage because of rising premiums.
The national average for home insurance has risen 20% this year to just over $1,400. Obviously, you can pay a whole lot more in well-heeled places like Southern California.
While lower-income homeowners blame high annual costs for ditching coverage, wealthier people say they have enough cash on hand to handle rebuilding, so there’s no need to pay a monthly insurance fee.
That’s bad thinking.
“It is a risky proposition to go without home insurance, and you need to fully understand the financial consequences if you lose your home,” Noah Damsky, a financial adviser in Los Angeles, told the Wall Street Journal.
Forgoing home insurance is literally playing with fire.
If your residence burns down, you might lose not just your home and all your possessions, but you’ll also be on the hook for carting away your home’s remains. And then comes rebuilding.
The Journal cited the example of L.A. resident Larry Farinholt, 73, a retired public defender. He hasn’t had home insurance in more than 25 years and estimates he’s saved more than $50,000.
Farinholt says the risk of wildfire in his neighborhood is low and he’s been burglarized only once in 40 years.
“It would probably be financially devastating if I lost my house, but I have enough money in savings to move into a condo in that event,” he told the Journal.
Many other homeowners may not be as fortunate.
Twelve percent of U.S. homeowners in the U.S. don’t purchase homeowners’ insurance — known in real estate circles as “going bare.”
About half of uncovered homeowners have annual household incomes of less than $40,000, according to a recent survey by the Insurance Information Institute, an industry group, and the reinsurer Munich Re.
Needless to say, lenders don’t like this trend. They’ll often purchase their own coverage for properties and jack up people’s mortgages to cover the cost.
Such insurance almost always is pricier than coverage a homeowner could buy for him or herself.
What all but the richest homeowners need to keep in mind is that you can be financially wiped out by a natural disaster — just as a serious diagnosis can devastate someone lacking health coverage.
Even a bare-bones policy can be better than nothing. Although some leading insurers are exiting the California market because of wildfire risk, shop around for basic coverage that can help protect you if your home is damaged or destroyed.
Otherwise, you’re on your own.
And when it comes to what is undoubtedly your single biggest investment, that’s not a good place to be.