Canceling home owners policy for homes owned without a mortgage

[Amir Navabpour]

I have owned rentals for about 7 years and in that time I have put in a few claims. Seems like no matter what the issue is they reject it. eBay even told me after the last one that putting in claims will increase my policy premiums. The latest one was for hail damage I had a roofer checkout who thought I should get something approved. Of course the insurance adjuster didn’t agree. Insurance in general seems like a borderline scam to me.

The main value I see in the policies is the liability portion. But I have an umbrella commercial liability policy for that. Curious if anyone has ever considered canceling their home owners policies for homes they own free and clear? Seems like a waste of money. I think one would only regret this decision If their home ever burned down or a natural disaster hit. I talked to a friend of mine who sold insurance for 15 years and he was also saying that often times when a natural disaster hits the insurance companies will claim bankruptcy forcing the government to step in

[Greg M.]

I work in insurance and have for 20+ years. It's extremely rare that I've seen a valid claim that was submitted properly actually be denied. Usually these are cleared up quickly. People shop for insurance by price instead of by coverage. They get the lowest cost insurance and don't pay attention to the coverage levels. Then their sewer backs up and they find out their cheaper insurance doesn't cover sewer back-ups or their electrical catches fire and the insurance company pays nothing because the homeowner didn't pay for replacement cost/code coverage and the value of the destroyed system was below their deductible. The story that gets told by the homeowner is that the insurance company sucks, it's a scam, and they'll never pay for a claim. The reality is that the person purchased the wrong insurance. 

Yes, putting in a claim can increase your rates even if the claim wasn't your fault. Not sure why you consulted eBay over this. Statistically a person who files one claim is more likely to file a second claim than someone who never filed a claim is to file their first claim. Insurance is all about statistics. 

An umbrella policy only covers you after your primary policy is exhausted. My umbrella policy requires primary insurance for $300K. You may be in for a bad surprise if you don't have primary coverage. 

Primary insurance also has a duty to defend you. Are you OK with paying attorney fees to defend yourself? What about experts to testify (FYI, they frequently get paid $5K+ for court appearances). Your umbrella insurance company might be happy to settle for $250K as they won't have to pay a penny. Are you OK with this?

Yes, some insurance companies can become overwhelmed with claims was a major disaster hits. Usually they are reinsured so it doesn't matter. Very few actually go bankrupt. Most states have insurance funds to pay claims in these events. Why do you care who pays you as long as you are made whole again?