Risks, Benefits, and Insurance

I read an article the other day about the increased number of people who have built in hurricane-prone areas since the government offered flood insurance.  Likewise, since earthquake insurance there has been a higher rate of development along earthquake fault lines.

It’s got me thinking that we totally misunderstand insurance as security.  I have health insurance; that doesn’t mean I won’t get sick, it doesn’t mean that when I do get sick it won’t cost me financially and inconvinience me deeply.  It just means that someone will be there to help me out with the costs.  I still wash my produce and cook my food because even with insurance I’m still better off staying healthy.  I have car insurance, but I still lock my doors and try to drive safely.  Those who use their insurance as security to live on shaky ground look to the uncertain future as a guarantee, and they are sacrificing themselves.

Insurance is good, necessary, even.  But common sense should still have a place in our lives.  At the end of the housing boom that dominated most of this century a lot of people are facing foreclosure now that their ARMs are ballooning.  I know people who have purchased their homes on interest-only loans at the peak of the housing bubble with the complete assurance that the value “will only go up” and that soon they can flip the property and use the equity gained to purchase a place they really want.  The problem is that property prices have started to decline, and soon many of these people will face foreclosure.  It looks like California, in particular, is going to see foreclosure rates it hasn’t seen since the Northridge earthquake.

I digress.  Housing speculation is another example of the same mind-set, but I wanted to focus on the insurance phenomenon.  After Katrina, those with the appropriate insurance were okay, but they still struggled, and would rather not have had to endure the devastation at all.  Unfortunately, there were uncounted more who didn’t have insurance and are still trying to get on their feet.  Everyone was mad at the government for letting this disaster happen; everyone was looking everywhere for a scapegoat.  Now many of the large insurance companies are completely pulling out of the area.  Insurance did not alter the cosmos and make the area safe and we are wrong for ever thinking that it could.  But the area was not as populated before insurance came in, and will likely see a population decrease as insurance pulls out. 

I’m not writing anything earth-shattering, I’m just musing on our social workings.  Yes, living on the coast is pretty and fun, and yes I live in a danger-prone zone, too (armed with my renter’s, earthquake, car and health insurance.)  I just can’t help but wonder most days if the benefits and insurance are enough to off-set the risks.  I think those who lived through Katrina might answer with a resounding “NO.”

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5 Responses to Risks, Benefits, and Insurance

  1. sleepyfrog76 says:

    Definitely something to think about. On another line of thought… I know a couple that has always lived off their overdraft. They never concerned themselves on whether or not they had enough money in their bank account because they could get whatever they wanted with overdraft. They would get it paid off, then use it again and again. I thought the point of overdraft was to protect yourself if something wierd happens like your direct deposit check didn’t get in before the automatic insurance payment came out and there wasn’t quite enough. It’s just another case of “living on the edge”, and I fear for them in case of a real emergency.

    Really? Yikes! Boy does that make me feel more responsible about my finances! Now I wonder, is overdraft reported on a credit report?

  2. aprilmommy says:

    I agree with sariah, I also know people who live off the overdraft. Seriously, why pay those $27 charges? You end up paying $30 for a $3 gallon of milk.

    I have wondered for a long time what makes people flock to areas that are prone to hurricanes. I mean, you know that someday it will hit you, so why rebuild over and over again? Just look at florida!

    I only hope that when some of these people go into forclosure on their homes, perhaps the rest of us can afford to buy a home again! I can’t stand the fact that if my Idaho house were located down here, it would be worth about triple what we are asking for it right now. Yet, it has sat in Idaho for three months… again. I am so sick of double bills people! Someone go buy my house! hehe.

    I am so with you, only except for the double housing payment (although mine might equate to a double payment … ) That’s exactly what Paul and I are hoping for, that with the rise of foreclosures we’ll finally be able to buy something. We realize that anyone who hasn’t paid their mortgage in three months hasn’t done renovations in longer, but we’re not afraid of paint and are hoping for something we can fix up and make our own, anyway. We aren’t looking to flip or take advantage of anyone, we just want to pay a fair price for 1000 sq ft (and I don’t think a fair price is $400K.)

  3. Karen says:

    This was very well written. I’m sure I could say more, but I just want you to know that I have read it, I agree with you, and I thought you expressed it perfectly.

    Thank you. That means a lot to me, coming from you. Usually I feel like it never comes out the way it would have if you had just said it yourself.

  4. East of Eden says:

    Right on Zen M.

    People always want to live on more than they have, and don’t realize that this mentality is what got them in trouble in the first place. Here in Los Alamos, they had the first bank forclosures in the town’s history last year–it’s only March and there have already been 6 forclosures so far. Our Bishop told us at tithing settlement, that if you don’t know how much $$ will make you happy, then no ammount of $$ will make you happy.

    First foreclosure was last year?!? Wow.
    Wise Bishop.

  5. feathersky says:

    When we went to the bank to find out about home loans they approved us for an amount WAY higher than what we’d be able to afford to pay every month because our credit is very good. Nathan told the lady that our credit is so good because we don’t get loans that we can’t pay back–we’ll stick with the original smaller amount! And then when we were looking at houses the first realtor was trying to goad us into a more expensive house (we dumped her the next day and the realtor we have now is AWESOME!)! It’s just amazing to me that so many people will get things that they can’t possibly pay back–or don’t think about the concequence until months later when the bill collectors come! (but actually, we’re trying to use that to our advantage by bidding on houses that are foreclosures and getting them cheaper! We’ll see if it works!) 😀

    I’ve heard a lot of responsible people complain that the bank and the realtor tried to convince them they could afford more than they could. I’m hoping with the current housing market trends and the deflation of subprime lenders that the practice will disappear, but I doubt it will and it’s up to us to make sure that we don’t let them bamboozle us into something we can’t handle. (Yes, we should totally pick up those foreclosures, though!)

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