Rising Cost of Insurance – Episode 532    

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re going to be talking about the rising cost of homeowners insurance, or here’s the other piece, the inability to get it. That’s what’s scary. So Kim, this actually hits home for you right now because something happened on the property. What was it? We had a tree fall, it was actually part of a tree, still a very, very large limb, and it crushed, I don’t think that’s too strong of a word, our greenhouse. And it is interesting because we’ve had lots of trees fall on the property and that is not a homeowners claim at all. However, when it damages a building, thankfully, not only is the building potential for either

[00:53] repair or complete overhaul, which is probably what we’re going to have to do, but the insurance company also will help pay for the tree removal, which is very helpful for us in this instance, because as I said, it’s a limb of a tree and the tree is now damaged and it’s probably a hundred feet in the air. It’s a huge tree. It’s on a hill. It’s in a tricky space and it’s going to be a very expensive tree removal process. So I will be very grateful that we have homeowners insurance to cover that. Okay. So you’re dealing with this right now and I bring this up because I was reading in a Twitter finance thread. Yes. For everyone that’s listening, I am that exciting on a Saturday morning, pulling

[01:40] out the phone and reading Twitter finance threads. All joking aside, the thing is I’m reading about this and it was a real estate investor that said, we have done hundreds and hundreds of millions of dollars of transactions. And we’re now starting to see the rise in cost of homeowners insurance and California is no longer issuing homeowners insurance from state farm Florida’s costs have gone out of the roof. Yeah. There’s other areas that simply aren’t doing it. So how can we look at this and relate it to life insurance? Because again, if you had a policy in California, a couple of years ago, you were adopted into it. You’re good to go or theoretically could be. So let’s talk about the comparison of these two.

[02:36] Well, it is interesting. So for years, I have encouraged people to keep high deductibles on their home car insurance and then add a liability umbrella on top. And it’s sometimes the first time a person has ever even heard of a liability umbrella that can protect against things like accidents in your home, et cetera. Nevertheless, your space of repairing homes, replacing homes, you know, if you’re in California and yours happens to get gobbled up by wildfires or, you know, dumped into the sea because of landslides or whatever, there is some thought that you could create enough cash value to replace that home cash value in your life insurance policy to replace that home. Now, I would never ever have somebody turn down home insurance and try to self-insure

[03:36] the entire arena of insurance is because those insurance companies are gifted at creating the actuarial science that does the statistics to prove and pay for proper claims. Nevertheless, if you have no coverage or you’re not able to get coverage or you’re not able to renew. And I agree, I think once you’re in, you’re in a much better space. And so make sure those bills are paid. Holy cow. You don’t want to have that accidentally happen. Nevertheless, if you cannot get it for whatever reason, one option would be to try to build up as much cash value as possible so that you did have the ability to repair or replace a home should some type of accident occur and you didn’t have homeowners insurance.

[04:26] Yes, absolutely. So that’s, that’s a good strategy, one, the umbrella. So, you know, for any of our listeners that don’t have that, send an email to HelloProsperity thinkers.com to find out about it. I believe that’s not a service that you offer, but you’re able to help at least explain and educate someone around it, correct? That is correct. The umbrellas are typically purchased from a property and casualty insurance agent, the person that helps with your car and home. However, I’m always happy to explain it. Okay, good. So let’s talk about one element. It’s the element of surprise. So this was a different thread that I was reading. It was from a blog post. This was on a Twitter thread. And it was an economist and he was doing a bunch of these, a bunch of these what

[05:13] ifs. So like, what if this happened? And what if that? And he proposed something that I had never thought of. He said this, he goes, so the real estate market is at an all time high of recent interest rates. Now, you know, go back to the 1980s. It’s not like 20%. It was, but still for us, it feels high because we’ve been drunk on low interest rates. Okay. All right. So the interest rates aren’t really correcting. House prices are at an all time high. We’re starting to see foreclosures. No, this isn’t a doom and gloom, but I’m going somewhere with this. So where it happens is this. What if we continue to see these insurance claims rise? What if we see the property prices strange moving around and we see a continuation of

[06:05] insurance companies that don’t want to issue insurance? The economist says, I predict that people will be foreclosed on because they will no longer be able to have homeowners insurance. Yep. That’s an interesting one because your mortgage does require insurance homeowners insurance to protect that asset that the bank has used as collateral for a mortgage. So yeah, I hadn’t thought through that all the way either. And that’s a really interesting one because I’m not sure at what point that would trigger, you know, do you have a year to try to work it out? Is it something that’s sooner? You have a current mortgage payment, ideally, and yet can they come still foreclosed because no insurance, but then you got to think about the fact

[07:02] that banks don’t want to own real estate. And so I can’t imagine them wanting to be overtly interested in foreclosing, kicking one family out, especially if payments are current. And so what may happen is some type of new product gets created whereby the banks provide the insurance because it would behoove them to do so. It will be really interesting as we go forward. You know, do we go back to a 1980 early 1980s realm where real estate was just a disaster all over the place and a whole bunch of real estate got shifted from basically people that didn’t have cash to people that had cash at lower prices or does some new type of product get created? You know, does something like in the health insurance arena where there

[08:01] are these Christian based medical communities that provide a different type of medical insurance, it’s kind of, there’s a word for it’s like a community built insurance pool. Maybe something like that comes to be as part of the, especially in California and Florida, the state’s realm of protecting the real estate there. Maybe there’s some type of community built insurance that does it. You know, who knows all speculation, but a good thing to think about. It is. You did mention one thing before that thread. What you said is that we may have the ability to self-insure. So if you’ve done your work, talk about that because that would be, you know, being responsible, setting things up correctly so that you

[08:49] could self-insure. Where does a life insurance policy fit in or other mechanisms like that? Where does that fit in? Well, self-insuring essentially means that you have enough assets to handle whatever the problem may be. And there are people that try to self-insure in the life insurance realm as well, which I think is very dangerous because of the guaranteed event and the timing of it, which is typically long. Nevertheless, if there is no homeowners insurance available, then self-insuring, in other words, having enough assets to replace or repair a home is potentially your only option. Well, if you do that, you want to make darn sure that the asset that you are allocating as your self-insurance fund is guaranteed,

[09:43] cannot go away, cannot be interrupted by stock market or other real estate realms of the roller coaster ride. And so cash value of whole life insurance is a very stable asset. It’s guaranteed to not go down. It’s guaranteed to grow. Even if only a little bit, it’s guaranteed to be there. And so if you’re wanting to self-insure, that’s the type of asset that you want to use for self-insurance, something that is guaranteed to be there. Okay. So here’s one other element that we got out of this episode. And this is for, this is probably more for like the audience that already knows you really well, Kim, which is I threw a curve ball. And this isn’t something we’ve ever talked about. Like, this is one of those like, what if this and this and this

[10:34] something crazy within seconds, you came up with, oh, okay. Well, maybe there’s some type of example of the Christian correlation of how they do self-insurance. Oh, what if banks start doing their own thing? There were options right away. So what really we’re getting to and what I’m pulling from this is, yes, some of these crazy things might happen. But on top of that, you have the ability to solve the problem. And to call it get punched in the face and then say, oh, okay, I got punched in the face there. Now I’ll duck and I’ll miss that next punch that’s being thrown. That was really good. That was helpful. Thank you. Yes. So for listeners, we appreciate you being on the podcast. These real estate questions are fun and the tumultuous times are interesting.

[11:28] It’s one of those pieces of time where we have to be very purposeful with all the work that we’re doing. So what you can do is send an email to hello at ProsperityThinkers.com and make sure you’re following the podcast from your favorite podcast player. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.