Is it Worth Insuring Your House?

[GeoffF100]

If the cost of buying a replacement would be a big hit, then the answer is probably "yes". But what if you are wealthy enough to shrug your shoulders, dig into your pocket and buy a replacement? What is the expected return in terms of probability of a payoff times the payoff per £100 of premium? How does this expected return compare with that from placing a bet on the horses?

[swill453]

Are you asking about buildings or contents insurance? I'm not sure many of us could dig into our pockets and rebuild the entire house very easily.

For contents, you have consider total loss, as in a fire for example.

If one had the ability to replace the odd item then the premium could be reduced by choosing a large excess, or not including accidental damage for example.

Scott.

[SalvorHardin]

If you are wealthy enough to buy a replacement house without noticing the cost, I'd still say that you still take out the insurance but with a large excess. Sure, the probability of your house suffering a serious loss is low but insurance is ideal for low-probability events where there is a seriously large potential financial loss. For anyone who is wealthy enough to treat the replacement cost of their house as a tiny item the insurance premium in comparison is trivial.

I don't have exact probabilities (this is very hard to calculate unless you have access to an insurance company's data) but the general principle I follow is to insure for low-probability high cost events and to self-insure for high-probability or low cost events. Some of the worst insurance decisions are to take out the extended warranties on relatively low-cost electrical goods when you can easily afford a replacement.

For example, my motorcycle is worth about £2,000. I can easily take a loss of that magnitude, so I don't insure the bike itself. My insurance is the legal minimum third-party and fire, with a big excess. I effectively self-insure for the bike itself, but insure for the third-party risk which is the archetypal low-probability but potentially massive cost event.

As to horse racing, the typical on-course bookies take (the "Vig") tends to be in the 10% to 15% range, something like an 85%-90%-ish expected return for the punters. Margins are generally lower on the betting exchanges. Sometimes there are exceptions, such as the 155% starting price in the 2010 Grand National.

https://www.theguardian.com/sport/blog/ ... ing-prices

[GeoffF100]

As far as insurance is concerned Lars Kroijer, in Investing demystified, says that insurance companies typically pay out £70 in claims for every £100 of premium, with £25 costs and £5 profit. It looks as though you get a better expected return by betting on the horses.

An insurance payout when your house burns down does, however, reduce the volatility of your return, whereas the bet on the horses increases it. Both gains are tax free, I believe. House fires appear to be more common than I thought:

https://www.nfpa.org/News-and-Research/ ... hold-level

Another, interesting possibility is spending the £100 on an out of the money put option, e.g. on the FTSE 100. A spread bet would be tax free, and this would reduce the volatility of your return, because it would pay out when your shares fall.

[JohnB]

"Never insure against a loss you afford to bear". So for most people, insure the building. Much less clear for the contents, as after losing it all in a fire, you'd buy different stuff, and probably much less stuff than you already have. So contents insurance is covering all the junk you should have chucked anyway. But insurance isn't just financial, its peace of mind, which is why I have car breakdown cover, as the last thing I want when stressed about a broken car is finding a local garage and tow truck.

I tend to think insurance companies are evil, as most years your only interaction is paying the premium, and if they employ nasty lost adjusters to squeeze your claim, and you go elsewhere to renew, they don't care, as you are probably are a higher risk now anyway.

[GeoffF100]

With regard to spread bets on out of the money put options, I seem to remember that half the spread is a big proportion of the option premium, so I do not believe that is a promising idea.

I had certainly wondered about contents insurance. I would mostly be insuring junk that I would not buy again. It is also very easy for the insurer to argue about the cost of the junk. I probably would be best to just take the hit there.

[richfool]

There isn't just the cost of replacing the house buildings (with related clearance of site, architect fees and rebuilding costs etc), to be considered. One should keep in mind that buildings insurance usually also includes various third party liability insurances. In the case of one's house buildings insurance, if for example, a tile falls off your roof and disables a passerby or tradesman, and leaves him unable to work for the rest of his life, the house owner could be sued for huge amounts relating to future loss of earnings and care costs etc.

[GeoffF100]

Buildings insurance appears to be worth while, even if you house is worth, say, less than 10% of your investments.

I think that I only have about £5K worth of contents that I would not want to lose, and perhaps another £5K of tat, if we are talking replacement costs. Most contents policies seem to cover more than that, so I am probably paying through the nose. My house was broken into about 20 years ago, and they turned the place over and took very little.

As far as car insurance is concerned, I found this:

https://www.money.co.uk/car-insurance/w ... ou-get.htm

I think that squares with my experience. Third party insurance did not appear to be significantly cheaper than comprehensive when I looked.

[GeoffF100]

Here are some statistics:

https://www.moneysupermarket.com/home-i ... alculator/

Average buildings insurance cost £80. Average contents insurance cost £53.

[moorfield]

Absolutely. We normally go for Buildings Insurance on a higher excess as a minimum. Although we've never had to claim on Moorfield Towers we've seen many of our neighbours over the years claim for:

Frozen pipes + water damage (quite common that one)
Leaking oil tanks
Neighbours trampoline blown onto slate roof (yep)
Damaged fence (errant and unknown driver)

You can never predict what's round the corner ....

[Dod101]

As an ex insurance man, and owning a house which might cost £300,000 to replace against a sale price of say £600.000, I would always insure the buildings against total loss (most likely that is by fire, explosion and aircraft damage) That £300,000 is not something I would like to have to find tomorrow morning. (The difference is of course the value of the plot which will still be there after the house-destroying fire.

I therefore insure my house and its contents (almost free these days),and my car for Comprehensive because again the difference is immaterial between that and Third Party. But never insure for breakdown if you are looking for value for money as long as you can be sure never to have a puncture on a cold night in the middle of nowhere. If that happens, you will be very happy to have paid the £80 per annum or whatever to be able to pick up your mobile and call the emergency service.

And never ever insure for breakdown cover for household items.

Dod

[Steveam]

I seem to have lost the post I prepared yesterday - no matter.

I agree with the thrust of the sentiments expressed above. I’m really only interested in insuring against catastrophe (from my point of view) so I thought I’d try to address this with travel insurance. I’d be quite happy to have an excess of, say, £10k or even higher as I’m only really worried about the big claim (hospitalisation, accompanied travel home with doctor/nurse, expensive medical evacuation, etc).

I’m basically trying to cover, as mentioned by others, the high cost events only. I’ll meet the smaller items myself.

I discussed this with a couple of specialist travel insurers and got nowhere. I tried a broker and again got nowhere. As far as I can determine there are no travel insurers offering this sort of cover with a really high excess.

Best wishes,

Steve

[GeoffF100]

But never insure for breakdown if you are looking for value for money as long as you can be sure never to have a puncture on a cold night in the middle of nowhere. If that happens, you will be very happy to have paid the £80 per annum or whatever to be able to pick up your mobile and call the emergency service.

If I remember correctly, basic Roadside Assistance costs about £25 per year as a motor insurance add on. I wonder about that one too. My car is Japanese, but it is about 5 years old. However, it does low mileage and is main dealer serviced. I often go to the middle of nowhere, and on a Sunday, but not at night. There used to be a company that guaranteed to find you a local garage that would accept payment by credit card in an emergency. I wonder if anything like that still exists.

I have looked at high excesses. They usually save very little.

[Dod101]

Excesses in general help insurers because it cuts out small claims and in theory anyway make people more careful but I think the answer to very high excesses for travel insurance not being available is because there is no demand for them. In fact I think just the opposite. Most people would like no excess so as to give them the comfort of being insured from the ground up, although there seems no reason why someone should not be able to provide one.

Dod

[Watis]

While I accept that all medical issues must be declared when purchasing travel insurance, I would like to be able to only buy cover for those conditions I want to be covered for.

I can see the objection immediately though, which is that there may be some overlap where an uninsured condition triggers an issue with an insured condition. But that can't apply to all conditions, surely?

Watis

[Dod101]

While I accept that all medical issues must be declared when purchasing travel insurance, I would like to be able to only buy cover for those conditions I want to be covered for.

I can see the objection immediately though, which is that there may be some overlap where an uninsured condition triggers an issue with an insured condition. But that can't apply to all conditions, surely?

Watis

I am not sure how that would work. Presumably most people would say I want to be covered for the 'biggies', broken limb or malaria or something like that, whilst others might say if they are suffering from say cancer, OK do not cover me for that, but as you say yourself, the one condition may well affect the other and where do you draw the line? If you have a chronic condition cover is usually available at a price, including terminal cancer sometimes.

Dod

[Dod101]

While I accept that all medical issues must be declared when purchasing travel insurance, I would like to be able to only buy cover for those conditions I want to be covered for.

I can see the objection immediately though, which is that there may be some overlap where an uninsured condition triggers an issue with an insured condition. But that can't apply to all conditions, surely?

Watis

I am not sure how that would work. Presumably most people would say I want to be covered for the 'biggies', broken limb or malaria or something like that, whilst others might say if they are suffering from say cancer, OK do not cover me for that, but as you say yourself, the one condition may well affect the other and where do you draw the line? If you have a chronic condition cover is usually available at a price, including terminal cancer sometimes.

Dod