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When you should buy disaster insurance
Hurricane Irene uproots a sidewalk and blocks a neighborhood street in Manasquan, New Jersey.
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Jeremy Hobson: Many of the victims of Hurricane Irene are now turning to the cost of their personal property damage. Problem is, a lot of East Coast insurance policies don't cover floods. So how do you decide what to be insured against?
For answers, let's bring in LA Times consumer columnist David Lazarus. Good morning.
David Lazarus: Good morning, Jeremy.
Hobson: Well David, you and I both live in L.A., we wouldn't expect anything like a hurricane to come here, but who knows? Maybe it would. Should we be insured? Should we be prepared for something like that?
Lazarus: I guess it all depends on what it'll take to help you sleep at night, because that's really what insurance is all about. Obviously, planning for every possible contingency is nuts unless you are Bill Gates and you can throw money at every problem you like. Otherwise, you want to play the odds. So if you live in L.A. like we do, earthquake insurance is something that should be high on your list if you're a homeowner. If you live on the East Coast, then you think about hurricane insurance.
Hobson: So all those people that just experienced the earthquake last week on the East Coast, they were probably right not to have insurance for that?
Lazarus: Oh absolutely, if you are playing the odds. What, that was the first earthquake they've felt in 70 years, something like that? So who is going to buy earthquake insurance for something like that? Whereas out here, you'd be nuts if you have a home to at least not take a close look at that product.
Hobson: So you're better off not having insurance and then just paying out-of-pocket if you suffer any damage from any disaster that happens?
Lazarus: I guess in those extreme cases that we're describing. The rule of thumb here, Jeremy, is the amount of equity that's in your home. And so that's when you want to start really planning for a disaster. So if you live in California and you have a lot of equity in your home, you need to protect that. Earthquake insurance suddenly becomes a good idea. If you live on the East Coast and, again, you have a lot of equity in your home, then you want to think about things like flood insurance or hurricane insurance or locust insurance or whatever it is that's the problem out there. That's what you're trying to protect, though, is your investment.
Hobson: And what about renters? We're hearing a lot more people are renters these days as the housing market has suffered. Should they be prepared when it comes to insurance?
Lazarus: I know a lot of people who are renters who swear by renter's insurance. All I can tell you is while I was a renter, I never had it and I did just fine. Now that's not a very expensive product -- roughly $15 a month for $30,000 in coverage or so. And it'll protect you for anything that your landlord's policy might not cover, so we're talking about natural disasters, possibly theft, things like that. Again, it all comes down to piece of mind. If this is going to help you sleep at night, then that's $15 well spent. Otherwise, that's $15 you can buy melatonin, you can buy stiff shot of whiskey, whatever will work, you know?
Hobson: L.A. Times consumer columnist David Lazarus. David, thanks so much.
Lazarus: Thank you.
All week I've been stewing about David Lazarus' take on renters insurance and how irresponsible his remarks were. This spring many of the renters in my area of Minneapolis were left with nothing after the tornado, literally LEFT WITH NOTHING - no home, no food, no "stuff"... many of my neighbors are living paycheck to paycheck. Yes, renters insurance chips off another ~10-15 dollars of those scarce funds. Being left with nowhere to go and no money to start rebuilding your life while your landlord chooses not to fix up your home which was declared uninhabitable REALLY DOES HAPPEN. The landlord’s insurance (as Cindy and Marty said) covers NONE of that. MELATONIN? WHISKEY? How about lunch for their children and somewhere to sleep? Buying insurance always looks like money down the drain, but when you REALLY need it, it is priceless. Family and friends can’t do it all. People depend on NPR and Marketplace for good information. To paraphrase Chris Farrell “check with your own advisor before making any big financial decisions†let’s hope those renters off to buy their melatonin and whiskey do some asking before they cancel their policies. Could you afford to replace everything you own? Lucky you.
I'm always bemused by the anti-insurance bias I've heard on the Marketplace shows, and occasional inaccuracies. For instance, as Cindy Roberts says in her comment here, landlords' insurance is *not* going to cover their tenants' property. That is the tenants' responsibility. And renters insurance policies generally are packaged with not only contents coverage, but liability protection and loss of use/additional living expense coverage. If that disastrous fire or tornado destroys your rented abode, having the insurance pay the additional cost of staying elsewhere can be a lifesaver for the family already living paycheck to paycheck. Liability coverage, too, can be important protection for a tenant lacking in resources to pay for a legal defense against lawsuit. Insurance can (and often should) be an integral part of one's financial plan.
About renter's insurance, Mr. Lazarus stated individuals might consider it to protect anything the landlord's insurance might not cover. CORRECTION: The landlord's insurance will not cover any of the renter's property. Think of turning the house or apartment upside down and shaking it. Anything that is left, appliances, fixtures, etc., that's what the landlord's insurance covers. The rest is the renter's responsibility to insure.
typo corrected version: David kept mentioning that a homeowner should consider insurance "if they have equity in the house." I�m not naive, but where's the morality in that advice? If the owner has a loan, they promised to pay the loan, regardless of whether the house gets destroyed. The fact that there's collateral for the loan is beside the point. The point is, the owner should have the appropriate insurance regardless of whether there's equity, so they can either repair the collateral or repay the loan in the case of disaster. Of course, the mortgage probably requires the insurance coverage.
David kept mentioning that a homeowner should consider insurance "if they have equity in the house." i'm not naive, but where's the moralizty in that? If the owner has a loan, they promised to pay the loan, regardless of whether the house gets destroyed. The fact that there's collateral for the loan is beside the pont. The point is, the owner should have the appropriate insurance regardless of whether there's equity, so they repair the collateral or repay the loan in the case of disaster. Of courrse, the mortgage probably requires the insurance coverage.
