I was hoping to get others' perspectives on what constitutes an optimal level of home insurance for those that are at or close to FI. I realize keeping the deductible high is intelligent -- I can afford a new window or 10 new windows. However, do any of you have a heuristic regarding how to think about a total loss in the case where someone has a significant amount of equity in their home, but also have a sizeable asset base from which to draw in case of a catastrophe?
I'll use myself as an example. Mid-40's, still working full time as a specialist MD, no debt excepting mortgage, and assets of just over $2 mil (excluding my home). I have $550k left on my mortgage, but my home would easily sell for $1.3m. I live in coastal CA. Right now, my home is insured for a rebuild cost of $665k with a "code upgrade" rider (meaning the insurance co would pay any extra requiring a newly built home to be up to current code).
I live in a very HCOL area and building is very costly. So, let's assume my house burns to the ground and it takes $865k to rebuild it. The insurance would pay for $665k of that and I'd chip in the extra $200k. That doesn't seem unreasonable to me since writing a check for $200k would really suck, but in the end it would just push my time to FI back a few years. Plus, the chances of a total loss are very small. That said, home insurance isn't really that expensive and paying another $100 or $200 per year would probably get me another $100k of insurance.
Essentially, the question here is: how much is the optimal amount of "wealth insurance" to preserve one's home equity in case of a total loss?
I'll use myself as an example. Mid-40's, still working full time as a specialist MD, no debt excepting mortgage, and assets of just over $2 mil (excluding my home). I have $550k left on my mortgage, but my home would easily sell for $1.3m. I live in coastal CA. Right now, my home is insured for a rebuild cost of $665k with a "code upgrade" rider (meaning the insurance co would pay any extra requiring a newly built home to be up to current code).
I live in a very HCOL area and building is very costly. So, let's assume my house burns to the ground and it takes $865k to rebuild it. The insurance would pay for $665k of that and I'd chip in the extra $200k. That doesn't seem unreasonable to me since writing a check for $200k would really suck, but in the end it would just push my time to FI back a few years. Plus, the chances of a total loss are very small. That said, home insurance isn't really that expensive and paying another $100 or $200 per year would probably get me another $100k of insurance.
Essentially, the question here is: how much is the optimal amount of "wealth insurance" to preserve one's home equity in case of a total loss?
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