Why pay for insurance?

[Account Closed]

I've been dealing with insurance companies and am convinced this is the biggest scam in the world. Every year the premiums go up and if you have the audacity to ever make a claim, they raise your rates and try to pay you far less than the actual damages. I just learned from my bank that they dont require full replacement value and as long as the insured amount covers the loan, they are okay with it.

So here is my plan: Tell me if I am crazy.

1. I am dropping my coverage to the value of what I paid for the home or a little more. That satisfies the bank and covers me if the house burns to the ground.

2. I currently have a portfolio of 8 homes and plan to get up to 25-30 by the end of this year. Once the homes are paid off (plan is to do it in 7-10 years) I would carry only liability insurance. The way I figure is this: I am paying at least $600 per home per year. If I have 20 homes thats 12K per year in insurance. Each home average buying price is $50K. So in 4-5 years of premiums, I could buy a home. Now I figure the chances of 1 home burning to the ground every 5 years is really small. Why wouldnt I just self insure and put the $12K aside in a reserve fund for 5 years and then forget about it? I would just pay for all repairs out of pocket and still come out far ahead.

Am I nuts or does this actually make sense? I know math is approximate and I will still pay for liability so cost is not zero but still..