The SCARY Way People Are Now Handling Home Insurance

remains of home after wildfire
The SCARY Way People Are Handling Home Insurance Cat Gennaro - Getty Images

With wildfires and hurricanes ravaging the country, you would expect homeowners to be clamoring for insurance. But according to a 2023 survey from the Insurance Information Institute, 12 percent of homeowners report not having homeowners insurance at all. That reflects a significant uptick from the five percent of owners who went “bare” in 2015—and it includes people who can’t get insurance as well as people who choose not to.

While it’s not the norm, going bare is a trend experts are seeing in some areas of the country. In Florida, for example, the number of homeowners going bare is estimated to be closer to 15 percent. While it may sound appealing to ditch those pricy insurance premiums, going bare presents significant risks.

What Homeowners Insurance Covers

Homeowners insurance plans protect you from a variety of perils that can threaten your home and belongings. Plans vary in terms of what exactly they cover, but according to the National Association of Insurance Commissioners (NAIC), plans typically cover damage from wildfires but often do not cover flood or earthquake damage. (You would need to purchase additional à la carte plans to insure you for those things.) In California, homeowners are understandably most concerned about wildfires, but Michelle Schwartz, a real estate agent at The Agency in Los Angeles, points out that homeowners insurance covers much more than just fire damage. “The coverage protects you from theft, water damage, and many other potential issues that may arise,” she explains.

Unlike auto insurance, which is mandatory in almost every state, you don’t legally need to have homeowners insurance. You do, however, need it to get a mortgage. While it can be challenging to find an insurance company to cover you if you live in a high-risk area, like on a coastline or in a state prone to fires, hurricanes, tornadoes, or earthquakes, almost everyone can get insured. It will just require some shopping around, and you may have to pay up for a plan.

Even if you have insurance, companies can choose not to renew your policy. That has been happening with alarming frequency in California: Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies there. But the states where it’s hardest to get home insurance include others that might surprise you—like New Mexico and inland North Carolina—as those areas become threatened by climate-change-related natural disasters. That being said, California’s insurance crisis is expected to stabilize over the next few years thanks to the Sustainable Insurance Strategy, which is being implemented by the California Department of Insurance this year.

Why People Are Going Bare

An increasing number of homeowners are either refusing—or can’t afford to—pay skyrocketing insurance premiums. Experts say insurance prices have been increasing steadily for the past five years due to the prevalence of natural disasters, which is causing insurance companies to pay out more claims, and inflation, which is driving up the cost to repair and rebuild homes in the wake of these extreme weather events. According to Bankrate, the average cost of home insurance in the U.S. is now $2,181 per year for $300,000 of coverage. That may not sound outrageous, but insurance costs correlate to the value of your home, so if your house is worth north of a million, you’re looking at a good chunk of change.

If you live in a natural-disaster-prone state like Florida or California, you may have shell out even more—that is, if you can even get one of the “admitted market” companies (the big, brand-name insurance companies that are regulated by the state) to insure you at all. Those living in particularly high-risk areas may have to resort to purchasing insurance from a “non-admitted market” company (these companies have the flexibility to charge whatever they want in exchange for taking on more risk) or your state-backed FAIR program. FAIR programs tend to be more expensive than traditional plans and usually don’t offer as much coverage (for example, the FAIR program in Connecticut insures only up to $350,000).

These high premiums are causing some people to roll the dice and bank on the fact that the risk of catastrophic damage to their home is relatively low. They aren’t wrong; in 2002, only 5.5 percent of all insured homes had a claim. They figure if a disaster does happen to strike, they’ll just rebuild on their own dime.

Is Going Bare Just for Rich People?

Mostly. The only people who can go bare are those who can pay cash for their home or who have already paid off their mortgage. “Mortgage lenders require homeowners insurance to protect their investment in your property,” says Kimber White, executive board member of The National Association of Mortgage Brokers. That explains why going bare is more common in Florida, a state populated with retirees who sold homes up north and were able to pay cash for their Florida residences.

Those going bare also tend to be high-net-worth people with the financial resources to self-insure, meaning they can afford to set aside hundreds of thousands—if not millions—of dollars for a (hurricane-level) rainy day. For example, Shellie Dunlap, a real estate agent with Lee Real Estate on Nantucket, an island known for its multi-million-dollar beach houses, says that there have always been a handful of high-net-worth clients who opt to self-insure their real estate holdings—but they are definitely in the minority.

Schwartz says that while none of her clients are going bare in Los Angeles, it’s happening there too. For some, the cost to rebuild just isn’t that much of a concern. “I’ve heard people say, if the home is destroyed, I will just write a check,” says Vin Debaggis, a senior advisor at RogersGray Insurance, part of The Baldwin Group.

Is Self-Insurance Worth the Risk?

Experts caution that self-insurance is a big gamble, especially given today’s unpredictable weather patterns and the rising costs of rebuilding. “At the very least, homeowners should consider liability insurance, which provides protection if someone is injured on your property and files a lawsuit,” Debaggis advises. To lower your premium while still maintaining coverage, Debaggis suggests opting for a large deductible. If you have a $2 million plan with a $100,000 deductible, you’d get a check for $1.9 million in the event your home is destroyed by a covered loss—which is better than the zero dollars you would get if you choose to self-insure.

You can also try to combine your insurance policies to save money. “One of the best ways to save on the cost of coverage is to bundle home insurance with auto insurance or another type of policy sold by your insurance company,” says Mark Friedlander, director of corporate communications at the Insurance Information Institute. “This could generate savings of 20 percent or more on both policies.”

There is one instance in which going bare may be a prudent choice: If your house is in poor condition, and you are planning to tear it down and rebuild in the future anyway. In that case, losing it in a storm may be no skin off your back. But for the average person, paying an insurance premium—even a pricy one—is nothing compared to the heartache, headache, and potential financial ruin of having your home destroyed in a catastrophic event.

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