How We Decided To Self-Insure

The Bad News

It all started with an innocuous looking envelope in the mail from our homeowner’s insurance company. They were writing to let us know that when our policy would be renewed (in several months) the coverage would change as they would no longer be covering:

“any structure enclosed by screens on more than one side, constructed to be open to the weather, and not covered by the same or substantially the same materials as that of the primary dwelling.”

I had a hunch this wasn’t good news, so I called our insurance agent to confirm. The basics of it were this. Any structures on our property that aren’t under the roof of the house would no longer be covered under our policy. For our house, that meant our in-ground pool and the screened pool enclosure would no longer be covered.

20120728-182919.jpg

Screened Pool Enclosure aka Pool Cage aka Lanai aka Kitty PoP Hunting Grounds – Lovely to keep the skeeters away

If you’re not familiar with “screened pool enclosures” (also called pool cages or lanais), they are basically giant screened cages that go around the pool to keep bugs out (and for us, to keep Kitty PoP in). They are made of lightweight aluminum framing and their walls are basically just the equivalent of window screening. They are notorious for becoming projectiles in hurricanes, and (sadly) can be expensive to repair, not to mention they can do a decent amount of damage to the pool deck if the aluminum frame collapses inward.

The Worse News

It seems like everyone we know has a horror story about a friend whose pool cage sustained tens of thousands of dollars worth of damage in a big hurricane. So when we got the news about our insurance coverage change, I told our insurance agent to start looking for new quotes from other companies or see if it would be possible to get a separate policy to cover the pool and the screened enclosure.

Our agent searched and searched, and we even had agents representing other companies see what types of coverage they could offer. Here was the scenario we were facing.

  1. A separate policy for the pool and enclosure wasn’t an option. The value would be too small for a company like Lloyds of London to want to write it.
  2. Very few companies were even willing to write a new policy on our house due to its age (built in 1985), construction (wood frame), and distance to “open water” (about 0.75 miles). The best policy from a company that would include coverage of the pool and cage would cost $4,300/yr – with a slightly higher deductible than our current policy, to boot.
  3. Our current policy was actually getting a little more expensive, too, even with the drop in coverage. Coverage for everything except the pool and lanai with our current company would be $2,300.

But there was a catch on the policy that was willing to insure the pool and cage. Turns out the coverage on the pool and cage would drop whenever there was a tropical storm or hurricane warning or watch. Most of the year, it would be fully covered with a $1,000 deductible, but anytime our house was in the cone of uncertainty* of a tropical system, the deductible would rise to $3,500, and the coverage on the pool and cage would max out at $10K. (This is the kind of stuff where it pays to have an insurance agent you trust and who knows their stuff. How many people have these kind of loopholes in their policies and don’t even know it?)

20120728-181451.jpg

Cone of Uncertainty vs Cone of Shame

So What’s the Bottom Line?

A $2K difference in yearly premiums, for what amounts to $10K worth of coverage in the times we’re most at risk. So, we figure the break even point here is:

$10K / $2K/yr = 5 yrs.

Do we think there will be catastrophic damage to the pool and its cage at least once every 5 years? Honestly, no we don’t. The pool and cage have been here for 15 years now, and there have been plenty of hurricanes and tropical storms that have come through the area without doing any significant damage to the structure. Now, we’re not fooling ourselves into thinking it’s invincible – we’re just simply noting that every tropical storm does not damage or destroy every pool cage in its path.

Game Plan If Something Happens

Even though the coverage we’re turning down would have only been worth $10K, it’s entirely plausible that a storm could between damage to the cage and pool, require $30K worth of repairs. What’s the plan then?

Until that point, we plan on putting $2K aside each year as part of our self-insurance fund. Even if it doesn’t cover all the damages, it’ll sure give us a nice head start.

Also, our coverage extends to the roof line of our house, so we could repair any damage up to that point immediately, and for a few hundred bucks more, remove the pool cage and close off the screened enclosure at the roof line as a temporary measure. Kitty PoP wouldn’t have quite as big an area to play in, and the pool would be open to mosquitos, but it’d be temporary. Then once we figure out how much the remaining repairs are, we would have to decide if we wanted to wait and save up the money to make them, or (if the HELOC is paid down completely at that point), put the repairs on that and pay it down after.

In the meantime, Mr. PoP is reinforcing some of the screened enclosure’s structure – replacing screws that have started to rust and stuff like that. We figure that we’re now going to be taking on 100% of the risk there, it doesn’t hurt to hedge our bets a little right now.

Have you ever decided to self insure part of your health or home? What was your game plan for the worst case scenario?

21 comments to How We Decided To Self-Insure

  • This is a really good post! I think in some situations that you have to self insure. I don’t have the best insurance on my car because I live out of the country currently and never drive it. So, we’re putting money in an emergency fund just in case something happens to it too. I hope a hurricane never damages your pool area – It is soooo pretty! I wish they had more of those here in Louisiana! :) P.S. Thank you for commenting on my blog. I loved your idea!

    • Thanks! I totally understand why you’ve got minimal coverage on your car if you’re not around to drive it. We technically own a third car (the Mr’s old Benz that he swears he will restore someday) but since it’s in his parents’ barn up north and is never driven, we carry no coverage on it and don’t even maintain the registration. (Not to mention I think it’s current resale value is $0 – though the hubs would argue for more!).

  • O gees I wish I had a pool now, that looks so nice! I’ve just got renter’s insurance for my place but I’m so glad I’ve got it. As for everything else, that’s why I’ve got an emergency fund. When I eventually buy property I’ll look into home owner’s insurance for sure.

    • They look pretty, but they can be super annoying to keep clean, not to mention the cost of heating them.

      Good for you for having renters insurance – we always tell our renters they should get it, but I don’t think many of them actually do.

  • [...] Business? Dough Roller: What Happens To Your Credit After You Divorce? Planting our Pennies: How We Decided To Self Insure One Cent at a Time: 101 Ways to be More Productive My Dollar Plan: 12 Ways the Olympics Teach [...]

  • [...] How We Decided to Self-Insure Self-insuring their outbuilding was probably the best idea in this case. It’s certainly something I would think about in a situation like theirs. (@ planting our pennies) Related Posts The Simple Dollar Weekly Roundup: Travel Tips EditionThe Simple Dollar Weekly Roundup: Link Choice EditionThe Simple Dollar Weekly Roundup: How I Round Up EditionThe Simple Dollar Morning Roundup: Post-Super Bowl EditionThe Simple Dollar Weekly Roundup: The Super Money Secret That Will Make You Rich Edition Did you like this article? You can get the complete text of all the latest articles at The Simple Dollar in your email inbox each morning by entering your email address below. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time. I've decided to give Facebook commenting a try, but your old comments will show up below! Previous Post: Eliminate Smoking and Minimize Drinking (219/365) [...]

  • What are your tips on your own self-control of NOT spending that money that you are setting aside for “self-insurance”? I think I would be fine day-to-day if the money was in a separate savings account and I didn’t see it, but I think I would have a hard time occasionally being tempted to spend the money when things come up that aren’t really necessary. I’m afraid I would not be able to talk myself out of it every time. Do you have any tips on self-control?

    • We tend to use the tactic where we put the money in a “pseudo” separate account. Our credit union offers multiple sub-accounts within our main account for various types of savings (the default labels are things like vacation share, christmas share, but you can change the names, too). We use these to set money aside if we’re accumulating it for a vacation or a big purchase, so that’s what we’re planning on using for this savings. It still shows up in all of our Mint accounts, but it’s not in our checking account so we don’t really think of it as immediately available – even though it really is.

      As for self control, we use Mint to really help us with that. We have monthly budgets set for lots of different categories, and we can always go in and check where we are before spending so as not to go over budget. (It’s really helpful that we both have phones with the Mint app, so we can literally check before we make a a purchase decision.) Those budgets don’t change just because we have more in the checking or savings accounts.

      Hope that helps!

  • [...] How We Decided to Self-Insure Self-insuring their outbuilding was probably the best idea in this case. It’s certainly something I would think about in a situation like theirs. (@ planting our pennies) [...]

  • [...] post How We Decided to Self Insure was highlighted by My Personal Finance Journey in the Carnival of Personal [...]

  • Beth

    Can you still self-insure like that if you have a mortgage?

    • We’ve got a mortgage, and the homeowner’s insurance coverage that we have is more than enough to cover the mortgage (we have ~$180K in coverage, and the mortgage is less than $110K). We didn’t point out the change in coverage to our mortgage company, but they have all the insurance docs and didn’t complain at the renewal even with the change coverage.

  • So…self-insured essentially means “go bare,” at least (as in your case) in part?

    Hm. Why not simply move to a part of the country where there are few or no mosquitoes and where you’re not so vulnerable to catastrophic storms? My homeowner’s insurance, which has no expensive-sounding exclusions, runs $733 a year for full coverage on the dwelling and garage.

    We don’t often have destructive weather here. But when we did have a rip-roaring hailstorm, my insurer paid to replace the roof, the HVAC unit, and a metal shed, to repair the paint on the eaves, and to six the KoolDeck around the pool: $20,000 worth of repairs and new equipment.

    While I can imagine dispensing with coverage for the tinfoil cage over the pool, I can’t imagine paying that much for insurance on the house. Maybe the insurers are trying to tell you something…

    • Hey, thanks for stopping by. Let me respond to a couple of your questions.

      We think of self-insuring as different than just not having coverage because we have a plan, and are developing a fund specifically for that purpose. Not having coverage and not knowing (or not doing anything to prepare for it) feels a lot more like gambling than our considered and calculated risk management (which is what insurance is all about, right?).

      You’re right – we could move to AZ. Been there, done that, and it would take a lot more than $2K in anti-anxiety medication to have that happen anytime soon =) (hyperbole – gimme a break!)

      But, at least we feel like the weather in FL is a somewhat known quantity, and our insurance rates reflect the risk that the insurers prepare for. I’m okay with that. It’s a cost of living in our little tropical paradise. And while it’s a cost we want to make sure we’re managing appropriately, it’s a cost we’re more than willing to pay.

  • [...] with astonishing homeowner’s insurance bills and annoying exclusions, Planting Our Pennies decides to self-insure an exterior structure vulnerable to storm [...]

  • [...] How We Decided to Self Insure was included in: [...]

  • [...] in Hurricane Isaac’s cone, so this is officially the first big test of self-insuring our pool and cage. Let’s hope we don’t have a direct hit and that Isaac stays a nice CAT 1 or even [...]

  • [...] here are a few of our favorite posts that you may want to check out to get a flavor of our site. – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured [...]

  • Sounds like a smarter way to handle your money. $2K annually is a large chunk of money but I’d much prefer to have control of my own funds. Great post.

  • Interesting. I thought you were talking about health insurance til I read the entire article. Good advice.
    Thad recently posted..Two Weeks With Apple TVMy Profile

  • [...] a flavor of our site. You can start at at our Net Worth Tracker! – How We Bought A $50K Duplex – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured [...]

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title="" rel=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge