Understanding Homeowners Insurance | Ask This Old House

12 Comments

1. Homeowner insurance: Where people who live inland subsidize people living near the ocean.

2. over coverage on useless items and under coverage on the important ones.

3. This segment inadvertently portrays home insurance as a scam in the end. lol

4. It was happened here in Florida. Because Flood Insurance went up over several years.

5. But if I don't know much walking in the door, I don't know I'm going to make any informed meaningful contribution while reviewing the policy with my agent or any agent. How much am I willing to cover my house? I'll sell all my stuff, take out loans, and eat white bread for the rest of my life. That doesn't help the agent or me decide on a reasonably priced policy.

6. Why isn't sewer backup covered? Flood damage is different because there's a federal program that covers it.

7. No windstorm information?

8. What about an umbrella policy?

9. Homeowner policies are overpriced because insurance companies know homeowners with a mortgage MUST buy homeowners insurance. It's a cornered market, and an abused one.

   Suggestions on figuring out which insurance is right for you:
   1) Pick a high deductible. If you calculate the diff in the cost for low/high deductible, usually you can recover that diff via lower insurance premiums within ~5 years. Instead, invest that difference in a rainy day fund so you can cover that difference when the time comes and very likely have a bunch left over (and actually invest it at minimum in a money market account and ideally equities like an index fund — don't leave it sitting as cash).
   2) Be wary of earthquake insurance. It is particularly expensive because when an earthquake hits, a huge number of homes are impacted, so the insurer has to overcharge for this "correlated risk" with dramatically higher premiums and may even just go bankrupt. Instead, invest the premium amount into a rainy day fund once again.
   3) If you drive a low-cost car (e.g. during 2012-2022 we were driving a 2003 Honda Civic that was valued between $3k-5k depending on the year), forgo collision on your car insurance and just be prepared to replace the car if there's a catastrophic accident. Again, invest the savings on the difference in insurance costs in a rainy day fund.
   4) Don't use your insurance if you can avoid it, because the insurance company will hike your rates … it's ironic how you pay for insurance and then must pay more when you use it. (You might ask, why then even have insurance then in cases where it isn't legally required? And now you are asking the right question…)
   5) If you can take on the risk and also own your home outright (no mortgage), forgo homeowner insurance and invest what would have been your premiums in a rainy day fund. After 40 years, between what you saved and what you get from those investments, you'll have saved enough to buy another house.

   We dropped everything but liability insurance on our home, and we plan to drop that next year as well. We also keep our living expenses very low and aggressively save and invest.

   If in a city where there's enough rental competition, renting and then saving and investing the difference of rent vs own tends to be better financially in the long term. Ownership comes with a lot of misc and hidden costs, and between buying/selling, you ultimately incur costs that are equal to about 10% the value of the home (which is why you really must stay in a home for 10 years for it to be not be particularly financially terrible to own vs rent). Frankly, we're in the last home we'll ever own — if we move again, we're renting.

10. ❤

11. Thank you for providing this video. Homeowners insurance is as vital as auto insurance and for the same reasons–it can provide coverage for the potentially catastrophic costs that can occur from fire, accidents, theft, etc. I appreciate you taking the time to help folks with this info, and as with all TOH videos, you presenting the facts in an encouraging, non-alarmist way.

12. You have to insure for personal liability in case a guest to your house hurts themselves there??? What next, have a waiver form at the door which all visitors have to sign before entering? "Hi Grandma, please sign this before you come inside".