Homeowners across the country are feeling the pinch of rising insurance costs, and financial expert Suze Orman is no exception. In a recent episode of the "Women & Money" podcast, a listener wrote in asking Orman, "When is it the right time to self-insure?"
Orman self-insures her own home, a roughly 2,000-square-foot condo, and said the current rate of insurance for her is $28,000 a year. "It is just ridiculous… in Florida is ridiculous because they also let you know if you make one little claim, even if it’s a little claim, they’re gonna cancel you."
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Why Suze Orman Chose to Self-Insure
Instead of continuing to pay the hefty premium, Orman opted to self-insure—meaning she takes full financial responsibility for any repairs or losses to the interior of her condo.
Orman acknowledged that natural disasters, particularly hurricanes, pose a risk to her condo. "Now my big fear is hurricanes, so it’s possible that we could get hit this summer after I’ve canceled," she said.
However, when weighing the potential costs against the likelihood of a hurricane or other natural disaster, she determined that she could save the money she'd pay for insurance. She pointed out that despite living in Florida for over 20 years, her condo has never been severely impacted by a hurricane. She estimated that if she went five years without needing repairs, she would have saved around $150,000—enough to cover most damage scenarios.
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According to Orman, the key factor in her decision was financial security. "No matter what happened in that condo, we can easily afford to fix it, and it will not on any level affect us financially," she explained.
What Is Self-Insurance?
Self-insurance is setting aside your own money to cover potential damages instead of paying for traditional insurance coverage through an agency. This approach eliminates expensive premiums, but it does require a substantial financial cushion in the case of major repairs or rebuilding expenses.
For homeowners considering self-insurance, Orman provided a simple test: If the property were destroyed tomorrow, could you afford to replace it without jeopardizing your financial stability? If the answer is yes, self-insuring might be an option worth considering.
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Is Self-Insurance Right for You?
While self-insurance works for Orman, it may not be suitable for everyone. Here are some key factors to consider before making a decision:
- Financial Readiness: Can you cover the cost of any major repairs or a full rebuild without facing significant financial hardship?
- Location Risks: If you live in an area prone to natural disasters, your risk of needing insurance is much higher.
- Condo Association Coverage: In Orman's case, her condo association's insurance covered exterior damages, meaning she only needed to account for interior repairs.
- Mortgage Requirements: If you still have a mortgage on your home, you may be required to carry insurance until that mortgage is paid off.
Rising Home Insurance Costs
This question of self-insuring comes at a time when home insurance premiums are rising nationwide, particularly in areas more prone to national disasters. Inflation and increasing building costs also play a role in these sky-rocketing prices.
While self-insuring worked for Orman, it's not a one-size-fits-all solution. For most homeowners, insurance remains a critical tool for financial protection and peace of mind. However, Orman's experience underscores the importance of regularly assessing insurance needs and costs to make informed financial decisions.
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