Self-insuring of concrete home?
Ok, sounds like an oxymoron, I know, but what are your opinions on forgoing hurricane insurance on a fully poured concrete structure with concrete roof, not in a flood area? Obviously windows and doors could still be at risk of puncture, but if properly covered, does the risk of damage warrant carrying an ~ 2% premium? Would you recommend carrying a substantially lower amount of coverage? Say 25% of replacement cost? This is all assuming no mortgage of course. Just curious as to your thoughts. Obviously either way there are tradeoffs.
There was an all poured concrete house on STT that blew apart because of the extraordinary air pressure during Irma. It was a frightful and unexpected occurrence for the owner.
Insurance works this way in the VI. You are "expected" to insure 80% of the replacement value of the structure to be fully insured.
So if your house structure is valued at $100,000 and it's a total hurricane loss the max you would get would be about $70,000 ($80,000 (or $100,000 x 80%) total claim - $10,000 wind deductible).
You also will need to pay for a structural engineer to estimate the loss - think another $1,000.
If you insure for let's say 25% if you can actually get this underwritten -
your hurricane loss claim would be $100,000 x .25 = $25,000 - $10,000 deductible and you would get $15,000 for your loss less the cost of damage assessment.
Homeowners insurance also insures other losses that may calculate differently and liability protection. If your house is new and well build the policy might be less than you think. Talk to a broker - we use Marshall & Sterling on STX.
Interesting info here (about whether concrete homes can withstand cat 5)
Underinsured has a penalty involved. The insurance company won’t pay expected coverage if the structure is not fully insured.
Personally, I have no “windstorm” coverage. The premiums are ludicrous, and the coverage is questionable. Insurance companies have skipped town after major hurricanes, or wiggled out of coverage in the past. Customers who paid premiums for decades have gotten stuck holding the bag (although not with Marshal & Sterling).
I bought land and built a new home beyond code. Hurricane rated everything, 3” ceiling beams on 24” centers, bond beams everywhere. The house is also surrounded on three sides by hills. We rode out Maria in it, and even though things sounded terrible all around us, our house held firm. Didn’t even loose any gutters. Building right makes a big difference here. Being lucky helps too. Stay away from anything built of wood.
I look at insurance like this, pay extra upfront for quality construction, you won’t need the windstorm coverage.
There is nothing wrong with establishing a brokerage account of very low risk investments, dedicate it to house storm repair, and write a check for it every 6 mo. for what an insurance policy would really cost you, or an acceptable amount you can bear.
the money, even if it only a few years worth when you need it will be immediately available, basically that is what self insurance is. Invest in good, easy to use, shutters and do any strengthening the structure before that for sure, consider the trees that can impact the house, get a generator and maintain it and take storm warnings seriously.
It is a better gamble than not having any insurance or under-insuring and if you never need it a huge bonus later in life.
If your VI home is your primary residence, you may qualify for a FEMA grant or SBA loan to make repairs after a declared disaster. That is not a backup plan otherwise.
For most of us, our home is our greatest asset - probably valued in the hundreds of thousands - why would anyone put that as risk over a few thousand dollars a year to insure it? Not having homeowners insurance (inclusive of wind and earthquake risk) doesn't make financial sense to me.
It would take 15 years of saving what would be the equivalent of our annual homeowners insurance premium to recoup the insurance loss payment we received for damage to our home by Maria. The damage was caused by water infiltration from blowing rain around shuttered up windows BTW.
I've chosen to be in the self insurance camp on windstorm damage. The home we purchased was built in 1970 and only Hugo did any structural damage and that was to a guest house on the property. No question there was investment to recover from each major storm but I'm planning on creating a storm damage fund that will be dedicated for this eventuality. We are planning to live in the home for many years and then transfer it to our children so we're taking a long-term view. If my horizon were 5 or 10 years, I would take out the insurance.
The other practical issue is any mortgage holder would likely require windstorm insurance to protect their investment.
If you’ve got a $500,000 home, the insurance company is going to want around $15,000 a year for windstorm insurance (3% value). Not including standard liability+earthquake coverage.
I look at it like this, I’ve got standard homeowners insurance that covers the usual liabilities and earthquakes (costs less than $2k a year). Considering how my home is constructed, if damage does take place, it’ll be minimal. My home consists of three pods built of steel reinforced cast cement with heavy timbered roofs, all of which is connected by a cement breezeway. It was built six years ago, so every piece of lumber is relatively new. If one, or even two wood roofs take damage, I’ve still got a backup to live in while I make repairs. Most likely after a storm, I’ll be the one doing the repair work. After a major storm, contractors will be swamped and concentrating on major big dollar projects first (like after Maria).
Granted, to some it may seem like a sketchy gamble, but after riding out Maria inside this house, I’ve got faith in the architect who did the engineering, the materials used, and the contractor who built it. Plus the overly anal nut job who spends untold amounts of time maintaining the dang thing (did I mention that’s me?)
My policy includes windstorm, earthquake, $100/$300K liability and fire loss. My annual premium is equivalent to 1.4 percent of the insurance value of my home's structure.
For those who might be purchasing homes, you can ask to have an existing homeowners policy transferred to you from the previous owner at closing. In my case, my home had a known 30 year policy history of no damage or claims (including Hugo and Marilyn), thus the premium was lower than if we had purchased a newly underwritten policy.
Also, we originally had our home in the rental market and had coverage based on that. Now that we live in our home our policy has been rewritten to reflect this and annual premiums have actually come down in price with lower deductibles.
The replacement insurance value is 80 percent of the assessed replacement value of your home's structure. You don't insure land and you don't over insure the structure above 80 percent - because there's no financial benefit to do that - it will increase your premium but won't increase the value of your loss if you have one. If you're not sure of the structure's insurance value - I would suggest paying for an insurance value appraisal though there are livable square footage calculations an insurance broker can provide that are pretty accurate.
So if your property was purchased for $500,000, and the land is valued at $100,000. the insurance value would be
$500,000 minus $100,000 = $400,000 structural value (assuming you didn't over/under pay for the structure), then $400,000 x 80% = $320,000 insurance value of the structure.
If you make improvements to your home - say you add solar panels as we did for $20,000, that adds to your structural value dollar for dollar though the insurance replacement value would be $16,000.
Current property values (land and structure) in the VI can be found online BTW.
I think the biggest issue is the insurance cost as a percentage of appraised value. At 1.5% of appraised value I’d buy insurance but at 3% I’ll self insure. Neither Marshall and Sterling nor Annaly insurance made any mention that I might get the same insurance rates as the prior owners. I’m not sure what there percentage was, so I can’t say if I missed out on an opportunity.
I suspect the previous owner of your property did not have an active homeowners/wind/earthquake policy, I think that happens a lot in the VI. The previous owners of my property had a mortgage so consequently had full insurance coverage.
It doesn't matter what your appraised value is of your property. What matters is what your insurer, which for most of us in the VI is Lloyd's of London whether you know it or not, is willing to pay you on damage to a property they value after a loss occurs. I negotiated directly with Lloyd's to settle my wind damage claim and not with my insurance policy underwriter.
On my claim for Maria, Lloyd's calculated livable square footage at $150/square foot, $70/square foot for open porches, and $100/square foot for other types of unfinished enclosed spaces like garages and such. So on a vintage house in excellent condition with 2000 square feet of living space, a 100 foot porch and a 300 square foot garage, your 100% insurance structure value will by $337,000 and they will pay 80% coinsurance up to a maximum of $269,600 on a total wind loss no matter what. Even if your property's structures were appraised at $500,000 when you purchased your home, full wind insurance coverage with 80% coinsurance would be for the amount of $269,600 and that is all that would be paid on a total loss.
You are required to hire a structural engineer to assess damage and determine fair market value of your loss. That is not what you will be paid. The insurance adjuster then uses Lloyd's loss table to recalculate how they would price each line item, which in most instances is 50% less than what you think you should get. Then all those discounted line items are added up and multiplied by 80% to get your proposed gross insurance claim - then your deductible is subtracted after that. That will be the initial payment offer. You then horse trade with Lloyd's to determine what will really be paid for your loss.
It will be FAR more complicated if you have a mortgage.
The moral of this story is use the correct calculations to determine the insurance value of your home - once determined insure 80% of that value because that is the max you will recover from a wind loss in the VI. Don't over insure.
The VI government's website can give you a fair assessment of the value of your land.
Thanks for the insight and analysis. Previous owner is a real estate broker on the island. My insurance is ultimately through Lloyds of London as you noted. Even though we had just purchased the home the insurance company required we get a professional replacement cost appraisal as part of the process of insuring the home.
One question after reading your last post. It's seems like the settlement process is both complex and results in not covering the full amount of the loss. My questions is what percentage of the loss is typically recovered through insurance?
If you can afford to rebuild you home without homeowners and windstorm insurance, go for it.
I can't. Not do I have the energy and expertise to do so.
After dealing with the likes of Hugo, Marilyn, Irma, Maria and many smaller hurricanes, I can't deal with the anxiety and unpredictably of not being insured.
Yes, rates have gone up, dramatically, since Hugo which I previously paid $800 a year for and now spend $6000 plus.
I also had to upgrade insurance and spend more to make sure I wasn't underinsured.
Both homes I've gone through major hurricanes in, survived, roof, intact but by the time you're done fixing and replacing, it can end up costing a bundle.so
The paper work in order to get a FEMA and SBA loans is burdensome, time consuming. Wouldn't count on that.