When our oldest bought their first home I had to sit them down and explain the different kinds of insurance for their cars and house. They knew there were some requirements from the state and mortgage lender, but they didn’t really understand all the options for limits and coverages. If not for that chat, (and without a good agent*) I could easily imagine that it might not even occur to them that their homeowner policy might not cover contents. Once you get it, it’s not that complicated, but someone has to alert you to the issue in the first place.
*even good agents fail to really inform people about everything, such as the necessity of high limit UIM insurance and the option to get an umbrella policy.
Wait, what? Are insurance companies charities that pay for your stuff out of the goodness of their heart?
This is a side track, but this logic makes zero sense. They are profit making companies, so why would pay them in the knowledge that over time you are almost guaranteed (or at least very likely) to spend more on insuring your stuff than they will pay out in return.
For things like liability or health (in the US at least) where there is a good chance you will end up paying millions and be bankrupted, insurance makes sense, as you are paying to alleviate that risk because the insurance company can pay those millions of dollars but you can’t. But insuring your computer in case some kid pees on it makes zero sense financially.
From an Allstate Insurance webpage, " Some common examples of hazards (also referred to as perils) that are typically covered by homeowners insurance include fire, theft and vandalism, among others."
Or read this page, which lists “vandalism and malicious mischief” among the commonly covered perils.
yeah but its stuff you can replace, why would pay more than the stuff is worth (or at least more than you will ever receive back from insurance) in insurance premiums. Financially its a no-brainer. Insurance companies exist and don’t go bankrupt. So you know that on average they will pay you less than you pay them. So why do it?
And last time I checked All-State was a for-profit company and had not gone bankrupt so we know that on average each customer pays them more than they pay out for "vandalism and malicious mischief” and everything else. So why should I do that? I mean if I want to spend money I’m guaranteed (on average over time) not to get back, why not go to Vegas and put in on the slots?
Most people don’t get their stuff stolen or destroyed, so it’s not a matter of spreading the risk over time, it’s a matter of spreading it over the population.
While it is true that you are likely to pay into insurance and never get it back, all it will take is one claim to make you a “winner”.
I pay something absurdly small like $80 a year to cover about $15,000 in contents. It would take me 200 years to pay more than what I would get under a claim.
Sorry, I thought you were questioning the idea that homeowner’s insurance should cover this vandalism. I may decide that my house is full of old clothes and furniture that’s not worth much, so I can probably replace it out of savings and investments in the rare event that it’s destroyed. (And I get to buy all new stuff, so bonus.) But I may still want insurance against someone tripping and getting injured in my house or against the house itself burning down.
I’m not sure I really agree. All you have to do is look at the front page of your policy document, the summary sheet. I just looked at mine, and it has a total of 8 numbers on it, all in very large print, all crystal clear what they represent. One of the items is:
Personal Property such as furniture and clothing. Your coverage limit: $XYZ,000
It really couldn’t be clearer, and I think a lot of this clarity is mandated by law. If there’s anything on that simple summary that you don’t understand, you can ask.
If someone doesn’t have the diligence to read a single summary page with 8 numbers on it, there are many far more difficult and dangerous things in life that will trip them up.
Because averages mean nothing when it is you that has suffered a loss. It the reason anyone buys insurance, hope for the best but prepare for the worst.
Because losing all your stuff is a financial catastrophe that many people can’t absorb. There certainly have been times in my life I could not have replaced all my stuff, so buying insurance was a way to spread the risk with other people, who are also on average unlikely to lose their stuff.
On average, I’ll pay more in car insurance than I’ll ever collect. But, if I caused an accident (unlikely but not impossible) it’s good to know my insurance company will take care of compensating the guy I hit.
When I had kids who needed my financial support, I bought a lot of life insurance. I knew that on average, I would pay the premiums and never collect (yea!).
Buying contents insurance as part of a homeowners policy is just like any other insurance. You hope you never need it, but it’s a relatively small cost to protect you against a larger loss.
(I hate that I sound like an insurance industry shill. I hate insurance companies because they’re greedy and don’t like paying legitimate claims, but the concept of insurance is a good thing)
But this is really not the correct way to look at it. The expected value of insurance to the customer is obviously always negative. It’s not principally a question of the probability of “winning”, it’s a question of the magnitude of the potential loss given your financial resources, whether the potential loss would be devastating and life-changing. Everyone should decline any “extended warranties” on a refrigerator or a computer. Virtually everyone should have basic insurance on total loss of their primary home. In between, there will be some threshold on the size of potential loss that you should insure that will vary according to circumstances. The general contents of a home (tens of thousands of dollars) are probably right around a level that could fall either way for different people.
What’s all the controversy about? Obviously there was more to the story than stated in the linked article. They either had insurance coverage or they didn’t. The parents of those kids have to pay for the damage they did. Who cares if anyone was prosecuted? The owners of the house want the damage paid for, it won’t do them any good to have a bunch of neighborhood kids sent to jail.
Something worth adding here. An “intermediate” strategy that I often favor (and have for my homeowners’ insurance) is to get substantial coverage, but with a very high deductible that’s within my financial resources to absorb. This covers me for disasters, but usually reduces the premium substantially. A high deductible is a non-zero-sum benefit to both customer and insurance company, because it saves both parties the hassle and administrative expense of submitting claiming for smaller losses.