So what's happened in the past 280 years? We've gone from just providing simple insurance policies covering homes for just the one peril of fire to homeowners insurance policies covering multiple perils - fire, lightning, windstorm, earthquake (by endorsement), hail, theft.... Back in the really old days, people joined hands to protect their property. Now we have big insurance companies handling thisfor us. We've become an extremely affluent society and one that expects someone to bail us out if there is a loss. We turn to our insurance company first and then the government for assistance if the loss was due to a catastrophe. What we're missing is the concept of self insurance. Your deductible is a kind of self insurance in that this is the amount that you as the insured have to pay toward your claim. Often it's not really understood by the public and seen as a negative. It has a major purpose in requiring the insured to have "skin in the game." That reduces the amount of bogus claims and fraud. But it goes beyond that when we talk self insurance. We're a society of haves and have nots. The few in the have's group have no problem with finding money to pay for calamities. But the vast majority of the have nots are people that don't have an emergency savings account. Most live paycheck to paycheck. When there is a loss, the ordinary Joe Citizen doesn't have the money in the bank to take care of him/herself. And Joe Citizen because they're in that position expect to be taken care of. This phenomenon has helped accelerate the cost of insurance. Every extra benefit provided by an insurance policy just cost that much more for everyone.
South Carolina has what's called a Catastrophe Savings Account. A way for consumers in SC to save tax free money to help pay for their deductibles or other expenses that may not be covered by insurance. I tend to be a little cynical about things like this and don't really think we'll take advantage of this program. But if you're one of those few people who believe in saving for a rainy day then our state has a way to help you do it tax free. Maybe because the cost of insurance has really gotten exorbitant for most people, this is a way to come back to our roots and take care of ourselves. I think Ben Franklin would be pleased and probably would have one of these accounts ! How much should you save in your catastrophe savings account? My recommendation is to build it up to meet or exceed the highest deductible that you would have to pay in case of a big claim. So if you have a $200,000 house with a 3% wind & hail deductible then you would need $6000 in case of a claim. That's $6000 of your money which you can save tax free in a SC Catastrophe Savings Account. Now that it's getting to the end of the year, keep this in your back pocket to ask your tax advisor or look at the brochure provided by the state.