Are You Annoyed That You Have to Buy Car or Home Insurance?

Maybe instead of considering car and home insurance extra expenses that you don't benefit from, think about how those policies protect your investment instead.

By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS

published 29 November 2024

in Features

(Image credit: Getty Images)

If you own a home, condo, vehicle or commercial building, chances are you are required to purchase insurance. How can it be that in America, the Land of the Free, you can be forced to spend money on something like an insurance policy? Let me explain why this is the case and, as important, how you can remove yourself from this requirement if you so desire. Yes, really. You can also watch my video about this:

The first thing that we need to discuss is the concept of collateral. If you look up “collateral” in the dictionary, you’ll see something like: “Property or assets pledged by a borrower to secure a loan or credit.” In other words, something of value that you are in possession of that you would provide in the event you breach an agreement. It’s your way of backing up a promise with more than just, well, a promise. You’re putting something of value where you promise is.

Karl Susman

Karl is an insurance agency owner, insurance expert witness in state, federal and criminal courts, and radio talk show host. For more than 30 years, Karl has helped consumers understand the complex world of insurance. He provides actionable advice and distills complex insurance concepts into understandable options. He appears regularly in the media, offering commentary and analysis of insurance industry news, and advises lawmakers on legislation, programs and policies.

Here’s an example. You want to buy a car — a super cool one — and the window sticker you’re looking at is about $31,000. You jump into your banking app on your smartphone, and who da thunk it, but you don’t have $31,000 in your account — and even if you did, chances are you wouldn’t be in the position to part with it all at once. But you really want the car. You need the car. So what’s a person to do? Well, the friendly salesman says the vehicle can be financed, so you have to part with only a few thousand dollars and then make payments on the balance. How thoughtful! You agree, and then comes the paperwork, the contracts and the promises you make to deliver a payment every month for the next five years of your life, on time, without fail.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

So you are handing the dealership a few thousand dollars, and the finance company or bank is handing over the balance. For our example’s sake, let’s say you’re paying $5,000, and the bank is providing $26,000. Yes, yes, I know there are taxes and fees, but let’s keep it simple for now. The bank has now parted with $26,000 smackers. It has a contract from you that says you will make a monthly payment on that balance, but what if you don’t? What if a year from now, the car is stolen? How likely are you to keep making that monthly payment when you don’t have the car anymore? Or what if some jerk smashes into your car, and after all the damage is taken into consideration, the car’s value is next to nothing? Are you still going to make those payments?

To protect itself and the $26,000 that the bank shelled out, the bank is going to require you to keep that vehicle insured. This way, if the car is stolen, or mangled beyond repair in a wreck, the collateral is protecting its $26,000. That car has value, but not if it is stolen or totaled. So by having you carry auto insurance on the car, the bank is certain that its collateral stays intact. Your insurance policy is insurance on the bank’s money.

Protecting your American Dream of homeownership

As tough as it certainly is these days, folks still manage to find a way to buy a home. Same idea as when you bought the car, you put some of your hard-earned money down, and a bank writes the big check. You pay that bank every month. However, now you may be married to that bank contractually, making payments for the next 30 years of your life. In fact, that might be longer than many marriages last.

One night, you have a great gathering of friends. Lots of good food, friends, music, and the police aren’t summoned until after 2 a.m. You take that as a win. Everyone heads out in the early morning hours, leaving you with the mess to clean up. But you look around and decide there is no way you’re going to deal with this right now, so you take off for a drive, to grab some breakfast and clear your head. Unfortunately, one of your buddies left something (we’ll let you decide what) smoldering behind the couch. Sadly, while you’re away, the couch catches on fire, and in a shockingly short amount of time, your home is nothing but ashes.

You still have 28 years left of payments you have promised to make to your bank. But how will you do that? You don’t even have a roof over your head — or a bed! Well, you see where we’re going here, don’t you? When you get that loan on your home, the bank will require you to carry insurance on it, once again, to protect its investment, the money that it paid for you to buy it. And good thing, too, since because of that mandatory action you took, your insurance company is there to put a roof over your head and rebuild your home.

I promised to tell you how to get out of the insurance requirement. If after getting to this point in the story, you still want that answer — meaning you don’t want to insure your car or your home. Here is the way to get out of having to insure your car: buy it with cash. (Note: All states require proof of financial responsibility, in the form of a bond or insurance.)

Here is the way to get out of having to insure your home: buy it with cash.

If you lay out all of the money yourself, it is up to you to decide whether you want to have the protection an insurance policy offers. With that perspective, perhaps the idea of being forced to do something, something that benefits you, may be less of a bitter pill to swallow.

Want more tips and information on insurance? Catch Insurance Hour on YouTube or as a podcast.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

Karl Susman is a veteran insurance agency principal, nationally engaged insurance expert witness and broadcast host who translates insurance from jargon to judgment. For more than three decades, he's helped consumers, courts and policymakers navigate coverage, claims and compliance. As Principal of Susman Insurance Agency, Karl works directly with households and businesses to compare options and make clear, defensible coverage decisions.