If you only gave it a quick glance, the headline in a recent Wall Street Journal article seemed clear and authoritative. “Americans Are Bailing On Their Home Insurance,” it said.
There’s one major problem with that headline. It’s not true. Americans are not “bailing” on their homeowners insurance.
The Wall Street Journal headline was classic clickbait. According to CoSchedule.com’s dictionary of marketing terms, “Clickbait typically refers to the practice of writing sensationalized or misleading headlines in order to attract clicks, relying on exaggerated claims or leaving out key information in order to encourage traffic.”
When it comes to homeowners insurance, that Wall Street Journal headline was sensationalized and it left out a key piece of information. Specifically, the vast majority of American homeowners – about 90% – have homeowners insurance they’re certainly not bailing on.
Many have homeowners insurance as a condition of their mortgage. Most homeowners keep their policies even after they pay off their mortgages because they value having that protection for a very valuable asset – their home.
Because it’s all about risk. I have written that I am not a fan of extended warranties for things like home electronics or furniture. Often it is better to self-insure by separately saving the money not spent on an extended warranty and then replacing the item – if it becomes unfixable – with those savings.
But consumer items usually only cost a few hundred or a few thousand dollars. It’s a manageable risk most people can comfortably take.
A man quoted in The Wall Street Journal story said it would “probably be financially devastating” if he lost his house. But he had let his homeowners policy lapse because he thought the “risk of a wildfire or flood” was very low in his neighborhood. That man is actually taking an unknowable and possibly very large risk.
First of all, wildfires and floods are uncommon in many areas. But often enough and out of the blue, they can and do happen.
More important is the fact that homeowners insurance covers quite a bit more than just things like wildfires and floods. On its Understanding Home Insurance page at Mass.gov, the Commonwealth of Massachusetts has a clear explanation of what homeowners insurance covers including the basic coverages, loss of use, personal liability, medical payments to others and optional coverages for a wide range of special situations including protecting valuable collectibles and other personal property.
It’s the personal liability coverage that gives insured homeowners protection from unknowable and possibly very large risks. Because even a very wealthy person could be financially devastated by a lawsuit judgment if someone was badly injured on their property.
Yes, homeowners insurance has gotten somewhat more expensive in recent years, even here in Metro Boston where we do not have the extreme weather catastrophes of some other states. The value of homes and cost of repairing or replacing a home has also gone up. Basically today – for most homeowners – there is more to insure.
The very nature of insurance is that an insurance company pools a group of individuals’ premiums together to cover expected losses which will occur, though no one knows to which homeowners.
No matter what the sensational clickbait might imply, it is always a prudent decision and a smart decision for a homeowner to have homeowners insurance to protect them against risks they cannot cover on their own.
From the “Smart About Money” Canton Citizen column published November 30 2023.
Nick Maffeo is the President & CEO of Canton Co-operative Bank – right next to the Post Office – in Canton.
Have a question? Email to info@cantoncoopbank.com.