If you can afford a hefty up-front deposit, you might never have to pay another home insurance premium.
A little-known policy called "perpetual home insurance" will let you do just that.
"People are skeptical when they hear about perpetual home insurance. They think it's too good to be true." |
Here's how it works: You put down a deposit that could be 10 to 15 times what you currently pay every year for home insurance. A perpetual home insurer will invest that money and use the interest to pay your home insurance premiums for as long as you keep the policy. You can get the deposit back (without interest) any time you cancel the policy.
The key to understanding perpetual home insurance is to think of it as an investment, not just protection for your house, says Rosanne Placey, a spokeswoman for the Pennsylvania Insurance Department. Pennsylvania is home to more than half of all perpetual home insurers. Many perpetual home insurers are mutual companies. If a mutual insurer makes more money in investments than it shells out in claims, it pays back the difference to the policyholders in dividends. If this happens with a perpetual home insurance policy, the insurance company could pay you to provide your home insurance.
"Our biggest obstacle is that people are skeptical when they hear about perpetual home insurance. They think it's too good to be true," says George Scherbak, president and chief executive officer of Saucon Mutual, a perpetual home insurer.
Where can you buy perpetual home insurance?
Perpetual home insurance is not a new idea. It has been around for more than a hundred years — the 175-year-old Cincinnati Equitable Insurance Company boasts of a policy that has been in force since 1837.
Perpetual home insurance is only sold by a handful of companies in Maryland, New Jersey, Ohio, Pennsylvania, and Virginia.
The few companies selling perpetual policies are some of the oldest home insurers in America. Saucon Mutual Insurance Company was founded in 1832. Benjamin Franklin founded Philadelphia Contributionship in 1752. |
It is an understandable reaction. After all, how can a ompany possibly make money by giving you home insurance in exchange for simply holding your deposit?
"One of the keys is to write insurance on good properties so there aren't a lot of losses, but it's also important to invest the money wisely," says Scherbak. For example, one applicant was told he would have to repair a sidewalk damaged by the roots of a nearby tree before Saucon would give him a quote.
It is a pretty common practice. Most perpetual home insurers will inspect the property to make sure there are no problems that could lead to an immediate insurance claim. So, among other potential hazards, stairways without banisters, damaged driveways or open wiring would need to be fixed before you'd be eligible for a perpetual home insurance policy.
Scherbak says Saucon Mutual would offer a $150,000 policy in Leigh County, Pennsylvania, for a deposit of $5,000.
A $175,000 policy in Bucks County, Pennsylvania, with the Philadelphia Contributionship could cost you at least $9,100 for a bare-bones policy. The policy doesn't pay dividends and you are responsible for increasing the amount of your deposit as inflation drives up the cost to replace your home.
So, what happens if you find yourself in a financial crunch and you need your deposit? Saucon Mutual promises to return the deposit premium within 24 hours of a policy cancellation, with the option to buy a more traditional annual home insurance policy.
What happens if your house is totally destroyed? Your policy will pay out the full amount and you get back your entire deposit.
Why don't more people have perpetual home insurance? It’s partly because the companies selling tend to be small and don’t have the money to advertise. Saucon has only about 1,000 policyholders. Also, most perpetual home insurers are licensed only in one or two states — primarily Pennsylvania and New Jersey.
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