Should You Risk Living Without Home Insurance?

If you own a home where insurance premiums have doubled or tripled, or you just lost your coverage, you may want to consider protecting your home the old fashioned way.

Nobody likes feeling trapped. But what better way to describe the insurance meltdown in places such as Florida, where premiums have gone from an average of about $1,500 to $4,300 in just three years? They’re predicted to rise even more in 2024. 

Even worse, many homeowners are being “evicted” from the policy rolls with “non-renewal” notices. Florida for instance, sent non-renewal letters to 150,000 customers in 2022. Just this week, Farmers Insurance announced that it would drop 100,000 policies in the State, 30 percent of its portfolio. 

Insurers blame frivolous lawsuits, hurricane losses and shoddy construction for the belt tightening, but whatever the real causes, the bottom line for homeowners is that they’re being thrown under the proverbial bus.

In this article, I’m going to discuss a topic rarely discussed: Should you, could you, protect your home without insurance? I’ll focus on three facts, as I go over the pros and cons:

1. The insurance you pay for may only cover a fraction of what you think it should. Actual payouts for major claims keep shrinking, as premiums grow larger. Even if you’re fully insured, you may get a lot less from your insurance than you think when you file a major claim. Read on.
2. Your home’s real risk of total destruction is pretty slim, unless you’re literally at ground zero when a Category 5 monster storm hits the beach. Most homes require some repair, but not a full demolition and rebuild. That’s why most claims do not cover total replacement of a home.
3. Homes that are physically prepared for the impacts of high winds and moderate flooding typically have demonstrated greatly reduced damage from all but the worst weather events.

The Flood Factor

Home insurance is complex. In hurricane prone areas, you typically pay twice: once for the usual homeowner fire protection with a “wind” rider, and again with a separate policy for flood protection. On that note, however, most homes do not have Flood coverage, despite the fact that on a national basis, floods do more damage to homes than wind.

A Congressional Budget Office report says that “Of households’ $34 billion in expected economic losses, $20 billion result from flooding and $14 billion from wind. Only about 20 percent of flood-related losses ($4 billion) are expected to be incurred by households with insurance, whereas roughly 85 percent of wind-related losses ($12 billion) are expected to be incurred by insured households.”

Only about 18 percent of Florida homes in the path of Hurricane Ian, for example, had flood insurance. Homeowners sometimes get some rebuilding help from FEMA, if the event is declared a federal disaster, but that’s not a guarantee.

According to FEMA “If your area does receive a Presidential Disaster Declaration, the average payout by FEMA’s Individuals and Households Program is only about $5,100 in Florida.  With the National Flood Insurance Program, claim payments average around $29,000.”

As we’ve seen this summer, however, flooding can happen almost anywhere.

What that means is that in most cases, when a home floods, insurers do not consider the property a total loss. They’ll assume that the home can be cleaned up and repaired, not torn down and replaced. 

This can have long term consequences for homeowners, especially if repairs are not done quickly. Certain  materials, such as drywall, never really “recover” after a flooding event and come become habitats for black mold or mildew.

Wind Coverage: More Bluster than Muster?

The insurance industry publishes the “average” claims after a major hurricane, although they’re less transparent about the final percentage of a homeowner’s loss they’re likely to cover. Recent investigations suggest that figure is often a lot less than their customers expect.

For example, The Washington Post looked at Floridian hurricane claims after Ian last year. Their in-depth dive found that many homeowners had their claims slashed by 47 to 90 percent. The authors note that “more than 33,000 Florida homeowner claims linked to Ian are still open without payment, while more than 125,000 were closed without payment, according to the Florida Office of Insurance Regulation. Nearly 56,000 claims were open with payment and 183,235 were closed with payment.”

Of course the insurance industry has legitimate challenges to overcome, so it’s probably unfair to try to pin the cost and availability issue entirely on sketchy claims adjusters. It’s unlikely that 10 major insurers would be fleeing Florida if they were still making money selling policies there. They blame fraudulent lawsuits related to roof replacement, especially, for their operating woes, and there’s some truth to that argument.

But ultimately, the root of Florida’s insurance crisis also lies in its housing stock and location. Most of the State lives near sea level, with few natural defenses against violent storms. Before I look at how a storm-ready home might negate the need for insurance, let’s look at some of what it costs to “fix” a 2,000-square-foot house after a big blow:

1. Garage Door Replacement: The cost of replacing a garage door after hurricane damage can range from $600 to $2,500 depending on the type and quality of the door. For a high-quality, insulated double garage door, the cost can go up to $3,500.
2. Siding Replacement: The cost of replacing siding after hurricane damage can range from $5,000 to $14,500 for a 2,000 sq. ft. home. The cost can vary depending on the type of siding material used.
3. Roofing Replacement: The cost of replacing a roof after hurricane damage can range from $5,000 to $10,000. For a complete roof assembly, the cost can go up to $15,000. 
4. Complete Interior Drywall Replacement: The cost of complete interior drywall replacement after hurricane damage can range from $1.50 to $3.00 per square foot. So for a 2,000 sq. ft. home, the cost can range from $3,000 to $6,000. 
5. New Appliances: The cost of replacing appliances after hurricane damage can vary greatly depending on the type and quality of the appliances. For example, a new refrigerator can cost anywhere from $900 to $8,000, a new range can cost from $650 to $2,000, and a new washer and dryer set can cost from $800 to $5,000. 
6. Electrical Work: The cost of electrical work after hurricane damage can range from $8 to $40 per square foot.

In total, for a moderately damaged 2,000-square-foot home, your repair cost can range from $31,950 to about $134,000. This can vary greatly depending on the type of materials (and quality of assembly) of the original structure. 

Other potential costs not included in this estimate could be related to flooring replacement, window replacement, HVAC system repair or replacement, plumbing repairs, and any necessary structural repairs.

Let’s say that instead of buying insurance, you invest that $7,788 premium in a 5% annual CD and don’t touch it for 10 years. You end up with about $5,000 more than your initial investment. But that’s just the frosting. The cake (versus paying for insurance) is $7,788 x 10 plus $5000, or $82,880. That’s a pretty good rainy day fund, and would probably pay for most moderately damaged homes after a hurricane. On the other hand, the storm might never come, and you save enough money for your kid’s college.

What are the advantages of such a resilience fund instead of spending it on insurance?

1. Control Over Funds: With a savings account, homeowners have direct control over their funds. They can use the money as needed without waiting for insurance claim approvals.
2. No Premiums: Unlike insurance, a savings account doesn't require annual premiums. Homeowners can contribute at their own pace, reducing financial strain.
3. Interest Earnings: Savings accounts accrue interest over time. This passive income can help the fund grow faster, providing additional financial security.
4. No Claim Disputes: Insurance claims can be disputed, delayed, or denied, causing stress and financial uncertainty. A savings account eliminates these issues.
5. Versatility: The funds can be used for any purpose, not just hurricane-related damages. This flexibility can be beneficial in other emergencies.

Hey Buddy, Get Real!

I know what you’re thinking: “Yeah, but that’s risky.” Sure it is. I’m not advising you to ditch your home insurance, just asking you to look at all angles. First, let’s look at what the actual risk is that your home will get flattened by a hurricane.

Often, only about 1 to 2 percent of homes in the direct path of a major hurricane suffer a catastrophic loss. Admittedly, this is a broad analysis. I looked at a couple of hurricanes that swept through Florida recently, counted the total number of homes in the storm’s track, and compared that number with loss claims. Homes on the coast or in flood plains obviously face higher risks. But construction details, as I’ll discuss shortly, also play a huge role in survivability. 

Could you lose everything to that one big monster storm? Sure. Are you likely to? Not unless you’re very unlucky, and right on the water. Keep in mind that even in Florida, only about 38 major storms have made landfall in the last century.

Total Hurricane Events, 1851 to 2023

Hurricanes that make landfall are not as common as you might think. Some scientists believe the Climate Emergency may not increase their frequency, but might fuel their severity.

Rather than gamble with hurricane forecasting, however, you could consider a more methodical approach, using building science to compensate for the insurance industry’s meltdown. The bottom line: The technology exists to make your home predictably more resistant to wind and flooding.

Fact: Code-Built Homes Take Less Damage

Better building codes save homes. Again, Florida is the best case study for the Southeast. After the State changed its statewide code in 2001, homeowners saw reduced damage from subsequent storms.

I remember visiting the Gulf Coast after Hurricane Charley in 2004. Much of the wind damage I observed resulted from shoddy workmanship, not system failures in the newer homes. For example, clay tile roofs blew off and became destructive projectiles. But it turned out that workers had attached the tiles with cement only—with no metal fasteners.

More recently, The Insurance Journal published information about the impacts of Hurricane Ian last year. They showed a dramatic photo of various homes of different ages and levels of readiness after the storm. The house that fared the best stood out, a 2020 home, elevated on posts and built to Florida’s most recent codes.

What do these more modern homes have that older homes don’t?

• Elevation: They’re raised high enough so that flood waters and debris can pass under and through them.
• Tie-Downs: Metal straps connect all systems of the walls and roof back to the slab or footers.
• Wind-protected soffit vents: Special soffits won’t “blow out” in a storm and allow wind to enter the attic cavity, tearing the roof off.
• Impact-resistant doors, windows or glass: Shutters or special glass reduce breaks that can depressurize the home interior. Garage doors are reinforced.
• New roofs. Properly applied, almost any type of new roofing material will outperform aging roof materials.
• Spray Foam Insulation: The University of Florida has shown that spray foaming the underside of your old roof deck can increase resistance to wind uplift by 250 percent.

What If You’re Forced to Insure?

Banks often require that mortgage holders keep both hurricane and flood insurance in at risk areas. This, frankly, is one of the worst aspects of an insurance “meltdown.” You simply may not have the option of using other methods such as a “rainy day fund” to reduce your risk. And if rates spike high enough, some people could end up in foreclosure, unable to meet the demands of their mortgage.

As of 2021, Census data shows that Texas and Florida, two of the most “at risk” states for hurricanes, have some of the largest numbers of mortgage-free homes. In fairness, however, if you break it down by population, they’re about average for percentage (about one-fourth) of the overall housing stock:

For the other 75 percent of homes, which still owe money to the banks, you can take steps to reduce premiums. They’re mostly the same ones you would take to make the home sturdier and forego insurance. 

Unfortunately, the insurance industry hasn’t caught up with all of the good building science. For example, they won’t discount you for having a spray-foamed roof, or recognize that you used magnesium oxide panel instead of drywall to keep your interiors washable after a flood.

Unless you have very deep pockets, insuring larger, more upscale homes especially promises to keep getting more expensive and harder to manage.

My advice: Downsize, elevate, insulate, pay off and prepare your home so the insurance companies no longer dictate your future. Let them come or go, while you sit in your sturdy, well anchored home, watching the Southern sunsets.

Editor's Note:  A reader response to this article:

FWIW, we had a significant fire a few years ago, a gut-to-the-studs event.  Soon after, we were approached by 2 different “public adjusters.” They offered to act as our agents in dealing with our insurance company’s “private adjuster,” for a fee of 10% of the payout.  One was kinda flakey, so we engaged the other. They couldn’t promise, but predicted they would up the payout by 75%, which we found to be accurate.

In an event like this, you’re dealing with someone who’s a professional and settles insurance claims all day, every day.  Meanwhile, you’re in panic mode- your house is unlivable and will be for months at best, you’ve never dealt with a situation like this and for most people, you already have a full time job to deal with. (We were fortunate in being retired.  I also became a professional handyman after retiring from an engineering career, so I have some familiarity with construction.)

Before you can submit a claim for contents, you have to submit an inventory.  You’re being pushed to do that so reconstruction can start, all while you’re in shock and trying to make living arrangements.  We were given a dollar limit for living expenses, but not told there was also a one year time limit.  BUT, our public adjuster sent an inventory specialist over who walked us through all the debris, listed everything we could possibly identify and then sent the list to his company which priced everything, even including a piranha jawbone, that molten lump of plastic that I finally identified as my favorite Bosch rotohammer and my wife’s art collection. The contents total came to $175,000.  I’d describe our adventures with the contractor, but that would take a much longer email- let’s just note it’s a good thing I’m a retired engineer, someone who can actually read blueprints.

My point is that in a grossly unequal situation, the public adjuster made it an equal battle and literally increased the payout on the house by 75% from the original offer, to a grand total near $500K for the whole settlement, genuinely making us whole. (Kinda- nothing can really make you whole in this kind of event.) 

The bad news?  A lot of claimants never get a chance to engage a company like Adjusters International, so they have the kind of experience you described.