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Unfortunately for me, the first coastal storm of the season arrived early this year. It spun up out of the Atlantic last weekend with little warning and struck the coast near our vacation home with 80 mph winds. I hadn’t yet winterized the property, and that was my mistake. Some of the patio furniture was still out, and one of the large storage lockers hadn’t yet been strapped down to its anchor bolts.
When I arrived yesterday, I discovered the locker had traveled about 150 feet before bursting open and scattering its contents beyond recovery. The patio furniture no longer qualifies as a set. The total loss is roughly $5,000.
Property insurance is non-negotiable. But owning a policy and using it are separate decisions, and the second sometimes deserves a bit of thought.
Should I claim? Instinct says yes, and the arithmetic agrees. With a $1,500 deductible, the most I could recover is $3,500. Suppose a claim raises my $2,000 premium by 25%, or $500 a year.
If the surcharge lasts three years, I pay back $1,500 and come out $2,000 ahead. At five years, I pay back $2,500 and come out $1,000 ahead. The break-even point is seven years. On paper, claiming wins.
But the paper leaves out three things. First, few carriers will write a policy on a coastal home in a region prone to Atlantic storms, especially one that sits empty for periods, so a claim could mean non-renewal and a scramble for coverage at a worse price. Second, 25% may be optimistic for a property insurers already regard with less than enthusiasm.
Third, the payout itself could come in below $3,500, given possible limits on outdoor items or questions about whether an unwinterized, vacant property affects coverage. Weighing those risks against a potential gain of $1,000 to $2,000, I’d rather not test my insurer’s patience over a loss I can afford.
I’m not seeking sympathy. Owning a vacation home is a privilege, and I can absorb this loss. It will sting, but I can cover it, so I won’t be contacting my insurer. I keep the policy for the catastrophic loss, the kind that would genuinely hurt, and I pay for the smaller ones myself.
Every storm has a silver lining, and mine arrives in spring, when I get to trail several paces behind my wife, Suzie, as she selects new patio furniture. I will nod at appropriate intervals and offer no opinions, having recently forfeited any claim to good judgment on the subject of outdoor furnishings.
There’s also a certain irony in all this. I’m at the vacation home this week helping organize the spooky Halloween festival and fireworks display we provide for local residents and the children of the district, so I suppose it’s the perfect time for a small property nightmare. One thing is certain, though: I will be fully winterizing before we head home, because I have no wish to see the sequel.
This is one reason why people hate insurance companies.
Our vacation home is in a hurricane prone area. So much so our property insurance has a separate $30,000 deductible if damage is from a named hurricane. Every time a storm is predicted I worry. Over the years a tree fell on a corner of the roof with minimal damage and this year a tree fell on an old picnic table set and destroyed it.
We carry another form of insurance though. Every week someone from a home watch service visits our house and inspects inside and out for any damage or issues. They send a report after each visit. If they see anything they send a photo and if necessary I can ask them to arrange for repairs. We just had a leak around the chimney repaired as well as the inside ceiling damage from the leak.
Every time we leave I shut off the water and in the winter keep the temperature at 55 degrees to avoid freezing.
Dick, I do the same. I shut off the water whenever we leave, and our policy actually requires it: between 1 October and 31 March, failing to do so invalidates the coverage. We also leave the furnace on frost protection over the colder months.
A home watch service sounds like a great idea, but unfortunately there isn’t one available in our area.
Dick, smart to have your home looked after when you are away. This is perhaps a stupid question, but does your insurance company recognize your extra effort to protect the property by giving you some sort of discount on the premium?
Nope. Unfortunately, the visits can’t stop damage, but they can help it from getting worse.
Mark, your story reminded me of something I read that Charlie Munger of Berkshire used to say. Property insurance is only for catastrophic losses and as one’s personal wealth increases, one can consider self insurance. This is exactly what he did with an extensive real estate portfolio despite being the Vice Chair of Berkshire (Geico). Albeit, Charlie was in a personal financial league of his own, but it certainly is akin to increasing deductibles or at least worth considering as one likely will never make a claim below a certain material loss that one won’t / can’t absorb.
Akhil, I took that same view when my 25-year term life policy ended last year. It was originally meant to cover our mortgage and replace my income for my spouse if I died early. Now that we’re debt-free, retired and have a comfortable portfolio, it made sense to cover that risk from our own resources.
Mark, I also live in a coastal area prone to occasional high wind events. Homeowners insurance has gotten more difficult to obtain at times from private carriers at a reasonable cost. I’ve taken an approach to look for policies with higher deductibles (ours is currently $5000), as it is unlikely I would ever file a claim for any loss less than $10-15000 due to the difficulty of obtaining moderately priced insurance. This approach seems to keep premiums at more modest levels. It also seems that once you file a claim, even a new insurer will rate a new policy based on claims filing history. I’m sure the ways properties are insured are different in Ireland, but in general I believe insurers will rate your policy for years beyond what you think they will, and also with perhaps larger policy premiums based on your willingness to file a claim of a moderate size. I would not file a claim, but understand why you shared your thought process.
Since it’s unlikely that you would file a claim for <$10,000, I recommend that you save even more money on your premium and raise your deductible to $10,000 if your insurance company offers it (as mine does).
$5000 is the highest available from my current carrier, which also offers the best blend of coverage and reasonable pricing. My current policy is actually with a state insurance pool, which is usually more expensive than private insurance, but it has priced out well in recent years.
Bill, I was thinking the same thing. I’m never going to claim a $5,000 loss, so what’s the point of paying extra for a policy with a $1,500 deductible? Before renewal, I’ll ask for quotes with a higher deductible. It should lower the premium.
Insurers treat frequent filers totally differently than airlines treat their frequent fliers.
Mark, I think you’ve made a wise decision. Insurance is there to protect us from financial losses we cannot comfortably absorb, not necessarily every loss we experience. The bigger risk, as you pointed out, is having your coverage dropped or premiums increased substantially, especially on a coastal property.
Living in Florida, I can certainly appreciate the challenges of obtaining affordable property insurance. Sometimes the peace of mind that comes from keeping a clean claims history is worth more than the reimbursement.
And I suspect Suzie will make sure that new patio furniture is worth every penny! Glad the damage wasn’t worse.
Andrew, Suzie has been hinting for the last few seasons that it’s time to replace the patio set. I may be imagining it, but I’m fairly sure I saw her smile when we found the storm-damaged furniture.
My understanding of our homeowners policy is that the policy provides a 5% back bonus on our renewal every year we go without filing a claim. We have been with the same insurance company over 10 years so I would prefer not to lose that discount.
When we moved out of our previous home decades ago I was doing major DIY updates before selling. I contacted our insurance agent about proper coverage for a unoccupied home and we were rewarded with a 3X increase in the premium.
I agree with with your thinking on not filing a claim. I also know that some policies take “depreciation” on some asset replacements when claims are actually filed.
Sorry to hear you Bee Out O’Settin.
William, my approach to the homeowners policy on our permanent residence is quite the opposite. I price the market every year on a comparison site and switch providers regularly. With the vacation home, though, I’m reluctant to switch. I keep my head down and hope not to be noticed, and your tripled premium for an unoccupied home is exactly what I’d rather not invite. The power dynamic between buyer and provider shifts when the insurance pool is smaller and riskier.
Thanks for your sympathy over my seating predicament. Pardon the pun, but I can stand the cost of replacing it, even if I’m standing in the meantime. 😉
I was licensed to sell property and casualty insurance for several years. I wrote some business for my long-time agent, sort of like a side gig to my tax business.
Based on my limited experience, your decision not to file a claim is probably the best choice. Insurers hate frequently unoccupied seaside homes (just ask anyone living in Florida) and would probably love an excuse to cancel your policy. As you said, insurance is for covering catastrophic losses, that’s why we don’t buy the insurance on cheap appliances or tools.
Chrissy would love to help Suzie load up your credit card with spiffy new patio furniture. Meanwhile, I could wait with you at the pub, for the bad news.
Is it true that patio furniture was invented by an Irish fellow by the name of Paddy O’Furniture?
Dan, it’s gratifying to have my decision confirmed by someone with even a passing grasp of the insurance business. Of your pub/Chrissy combo, the pub is obviously the only palatable half. Two motivated women loose in a furniture store? Are you mad?
As for outdoor seating innovator Paddy O’Furniture, his insistence on building with laminated potato skins doomed the enterprise almost immediately.
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