How and When to Self-Insure Your Home

Self-insuring your home isn’t for everyone, and it might not be the cash savings you think.

Athena Valentine Lent
Athena Valentine Lent

Athena Valentine Lent is a finance columnist for Slate and the author of Budgeting for Dummies (Wiley, 2023). Her writing has appeared in BuzzzFeed, The College Investor, GOBankingRates, Money Under 30, and Keeper Tax among other places. Her personal finance blog, Money Smart Latina, won the Plutus Award for "Best Personal Finance Content for Underserved Communities" in 2020 and was nominated for "Blog of the Year" in 2022. When not working she can be found with her main man, a polydactyl cat named Harrison George. 

Chris Schafer
Edited byChris Schafer
Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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Updated June 24, 2024

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Home insurance rates are up 6% in 2024 and 20% in the last two years, according to Insurify data. These dramatic rate increases are due to several factors, including natural disasters and inflation. And, with home insurance rates on the rise, it’s no wonder homeowners and renters alike are looking for more affordable ways to protect themselves and their belongings.

Depending on your financial situation, self-insurance may be the way to go.

Self-insurance is setting money aside in a savings account, or withdrawn from your investments, to cover expenses that homeowner or renters insurance would normally reimburse you for. This could include items damaged on your property.

Here’s what you need to know about self-insuring your home.

Quick Facts
  • Self-insuring your home can provide you additional control over how repairs are handled, but if someone hurts themselves on your property, you could be liable for their injury costs.

  • Placing money in a high-yield savings account can help the money you set aside to cover home-related expenses grow more quickly.

  • If you have a mortgage on your home, your lender will likely require you to carry conventional home insurance to protect their interests.

Homeowners self-insurance explained

A homeowner is self-insured if they decide to forgo traditional homeowners insurance coverage and instead use their financial reserves to cover unexpected costs, repairs, and emergencies. Choosing to self-insure can help cut insurance costs, as you’re no longer paying an insurer for a policy.

The key difference between self-insurance and traditional homeowners insurance is who’s responsible for out-of-pocket costs. Self-insurance relies on you having the income or financial resources — including money in savings or funds you can withdraw from investments — to pay for repairs should anything happen to your home.

For example: If you experience water damage in your home and need to replace your flooring, you could be out up to $5,000 to fix the floor alone.[1] If you had homeowners insurance, you’d be responsible for your deductible, which is $1,000 on average for customers with a traditional policy. This would amount to up to $4,000 of savings, minus the money you spent paying your monthly insurance premium.

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Who can self-insure — and who can’t

Self-insurance isn’t an option for everyone. But it could be right for you if you:

  • Are a high-income household and are close to retirement

  • Have more disposable income and no dependents

  • Own your home outright

  • Have enough financial reserves to cover any unexpected expenses, repairs, or other costs

Self-insurance may not be an option for you if:

  • You don’t own your home outright and are carrying a mortgage, as your mortgage company will require you to carry homeowner insurance to protect its interests

  • You don’t have the financial resources to cover emergencies in real time without going into debt

  • You aren’t a high-income household

How homeowners self-insurance works

If you decide to self-insure your home, you’ll want to have an adequate savings account you contribute to regularly. This could be an emergency fund housed in a high-yield savings account or an investment account you can access quickly, such as a mutual fund. If something happens to your home, instead of filing a claim, you’ll need to tap into your savings to cover the expense yourself.

Pros and cons of self-insuring your home

Is self-insuring your home right for you? Here’s a list of advantages and disadvantages to consider.

Pros
  • Saves more money and time by not paying a monthly premium you might not use and never having to file a claim

  • You can decide what expenses and repairs to cover

  • Less time wasted going back and forth with an insurance company

  • Being able to pick your contractor and not one assigned by an insurance company

Cons
  • Your repair bills could exceed the money you’ve saved

  • May have to go into debt to cover expenses if you don’t have enough money, particularly if you’re found liable for an event that occurs on your property

  • Might not be an option if you have a mortgage

How to self-insure your home

If you decide the self-insurance route is right for you, you’ll want to take the following steps to make sure you have adequate coverage.

  1. Calculate the value of your home both inside and out. It’s important to not only know the value of your home but to also know the value of the belongings inside. You should list electronics, art, jewelry, appliances, furniture, and other family heirlooms of significant value, and you should update this list regularly.

  2. Estimate potential repair and replacement costs. To adequately self-insure your home, you must understand your potential repair/replacement costs. Rates for repairs and replacement items can vary widely among home improvement stores and contractors, but calling around or searching the web can give you a general idea. Next, don’t forget potential medical bills in case someone is injured in your home and you’re legally required to cover it.

  3. Determine your self-insurance amount. Once you’ve done your research, it’s time to decide how much you should save to help protect yourself. A good idea might be to set your figure as a certain percentage of your belongings or the value of your home.

  4. Open a high-yield savings account (HYSA). HYSAs offer a higher annual percentage rate than traditional savings accounts and are easy to access when needed.[2] With a high interest rate, your money will be making you money in no time.

  5. Make monthly payments into your savings account. Once you’ve figured out your account goal, make saving toward it a regular part of your budget. You can dedicate a certain percentage of your income or a predetermined amount to regularly be sent to your designated savings account. Eventually, you’ll get used to the money transferring directly to your account and won’t miss it in your daily life.

When to make adjustments to your self-insurance

Choosing to self-insure isn’t a decision you make and then forget about. Instead, choosing to self-insure requires you to take a more active role in protecting yourself against any future potential financial losses.

You should sit down at least twice a year and re-evaluate your home’s value and the value of your possessions. These evaluations may show that you need to put more money aside than you originally thought — or your possessions could depreciate, meaning you could lower the amount.

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Alternatives to homeowners self-insurance

The option to self-insure your home isn’t practical for most homeowners. But that doesn’t mean there aren’t other ways you can save on homeowners insurance policy and lower your premium.

Here are a few options you could consider:

  • illustration card https://a.storyblok.com/f/162273/150x150/b045612c49/house-rental-96x96-orange_045-value.svg

    Know the value of repairing your home

    Home insurance covers the cost of your home repairs, not the value of your actual home.[3] So even if you choose not to self-insure, you’ll be aware of how much coverage you need to repair damage to key areas of your home, including the roof, foundation, and more.

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    Shop around for multiple quotes

    Don’t be afraid to ask multiple insurance companies for a quote to help you find the best rate for your home insurance policy.

  • illustration card https://a.storyblok.com/f/162273/150x150/d2a2cefe8c/insurify-icons-auto-green-96x96_024-home.svg

    Bundle your policy

    If you already have an existing policy with your insurance company, ask your insurance agent if you can save money by adding on a home insurance policy. The more insurance policies you have with one insurer, the more discounts you qualify for.

  • illustration card https://a.storyblok.com/f/162273/x/5285c4cd74/uninsured-or-underinsured-motorist-coverage.svg

    Review your coverage

    Review the coverage your current insurer is offering to make sure it matches your needs. You may be able to save money by eliminating protections that aren’t applicable to you.

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    Consider insurance costs if shopping for a new home

    If you’re on the hunt for a new home, don’t forget to estimate your home insurance costs along with your property taxes and the other costs associated with home ownership.

  • illustration card https://a.storyblok.com/f/162273/150x150/79b027a857/house-rental-96x96-yellow_050-budget.svg

    Choose a higher deductible

    Opting to pay a higher deductible can reduce your monthly premium because you’re taking on more of the risk yourself. Just make sure you don’t set your deductible so high you can’t afford to cover it should you need to file a claim.

  • illustration card https://a.storyblok.com/f/162273/150x150/c6bae56df5/protection-and-security-96x96-green_001-cctv.svg

    Invest in a home security system

    You might be able to get a discount for taking proper security measures to protect your possessions. Consult your policy to see if your insurer offers low rates for making security improvements to your property.

  • illustration card https://a.storyblok.com/f/162273/150x150/e6c9ee6008/recovery-and-repair-96x96-blue_023-repair.svg

    Be proactive in your home repairs

    A roof repair or a new water heater have up-front costs but can save you money long-term. Regularly inspecting your home for wear and tear damage can also prevent you from having a claim voided by your insurer because of neglect.

Homeowners self-insurance FAQs

Here are some of the most common questions homeowners have when it comes to self-insurance.

  • Can you self-insure a car?

    Probably not. Every state except New Hampshire requires minimum liability car insurance. And if you’re financing your vehicle, your lender will probably require you to carry full coverage on the vehicle.

  • Is it legal to self-insure your home?

    It’s legal to self-insure your home if you meet the proper requirements. You may not self-insure your home if you have a mortgage or HELOC as your mortgage lender will require you to carry conventional home insurance coverage.

  • What are the reasons for self-insuring a home?

    Saving money on insurance premiums is a common reason for self-insuring your home. Some people also self-insure to have increased choice in how repairs are handled.

  • How much does it cost to self-insure your home?

    This number is dependent on what you feel comfortable with. Keep in mind that if you choose to self-insure your home, you’ll be responsible for damages to not only your home but your possessions inside. You may also be liable for injuries sustained by guests on your property.

Sources

  1. Angi.com. "How Much Does Water Damage Restoration Cost? [2024 Data]."
  2. PNC. "What is a High Yield Savings Account and How Does it Work?."
  3. Insurance Information Institute. "How much homeowners insurance do I need?."
Athena Valentine Lent
Athena Valentine Lent

Athena Valentine Lent is a finance columnist for Slate and the author of Budgeting for Dummies (Wiley, 2023). Her writing has appeared in BuzzzFeed, The College Investor, GOBankingRates, Money Under 30, and Keeper Tax among other places. Her personal finance blog, Money Smart Latina, won the Plutus Award for "Best Personal Finance Content for Underserved Communities" in 2020 and was nominated for "Blog of the Year" in 2022. When not working she can be found with her main man, a polydactyl cat named Harrison George. 

Chris Schafer
Edited byChris SchaferSenior Editor
Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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