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Opting to be uninsured

Discussion in 'General Property Chat' started by scientist, 24th Sep, 2016.

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  1. scientist

    scientist Well-Known Member

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    Wondering if anyone here chooses to not insure their IP buildings

    I'm currently seriously considering not renewing next year for the following reasons:
    1) stand to save 5k a year across portfolio
    2) I have the cash position to build a new home in worst case scenario
    3) cannot imagine a reasonable insured event that will actually wipe out a house building in its entirety (max damage I can reasonably expect would be in the five figures range)

    From a financial decision point of view I know being uninsured would have a positive expected value, just wondering if there are legal ramifications (e.g. will bank be upset? what if loans are already settled long ago and not seeking new finance? what other parties would care?)

    I guess public liability insurance is still a must since the potential loss is massive - but if only getting that it would cost much cheaper. Thoughts?
     
  2. Simon L

    Simon L Investment Property Buyers Agent Business Member

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    Nobody expects anything to happen until it actually does. Seeing how some tenants live and the risks they put themselves in, there would be no way I would own any property without full coverage.
    Although I have never made a building claim, I have made several landlord/malicious damage claims and probabilities would suggest something major will happen eventually

    One way I minimize cost is to insure the bare minimum house value. In the event of a fire destroying everything for example, I would be happy to fork out $50k of my own cash to build a brand new home and thus increasing the value of the property significantly. Maxing out your excess also helps reduce costs

    The other thing to consider is your sleep at night factor....
     
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  3. herenow

    herenow Well-Known Member

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    5k a year savings is nothing compared to the risk you would face imo.

    We had a fire in an IP. Total repair cost inc. payments for lost rent would have been in the high tens of thousands.

    We'll be in positive insurance territory for a while now I think.
     
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  4. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Part of loan contract is to have insurance.

    Not having building insurance to save $5k pa is just stupid. Its a cost of ownership.

    Not having landlord insurance and just carrying that risk is certainly worth looking at once the portfolio reaches a certain size and the cost of combined policies exceeds a typical risk payout
     
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  5. Ed Barton

    Ed Barton Well-Known Member

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    Can you even get just pli by itself?
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    Yes
     
  7. Indifference

    Indifference Well-Known Member

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    As @DaveM said, if you have any mortgages it is compulsory to carry insurance.

    If your insurance bill is 5k, that has a tax offset as it is part of your expenses so your "saving" may in reality be far less...

    To save so little & risk so much (ie. if your lender finds out!) Is not very wise IMO.
     
  8. Ed Barton

    Ed Barton Well-Known Member

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    What's the cost like do you know?
     
  9. York

    York Finance Broker Business Member

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    Many lenders require you to have building insurance. But regardless of that, why put yourself in such a position where you aren't protected? A key element of any kind of investing is risk minimisation where possible. Trying to reduce your costs by 5k per year isn't a wise strategy. All it would take is a fire on an older style home which could compromise the structural integrity of the house and then depending on the extent of the damage, you may find yourself having to clear the entire site and build again. Many might say this is improbable but it certainly is possible.

    Having the money to build another one is irrelevant. You wouldn't want to spend all your savings on a rebuild when you didn't have to.

    In addition I think each and every IP should able to stand (no pun intended) on it's own regarding costs. If the yield doesn't suit your strategy including the basic costs incurred to hold it, find another property that does instead of trying to reduce necessary costs especially the ones that are there to protect you.

    Just some things to think about. :)
     
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  10. Joynz

    Joynz Well-Known Member

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    Don't they have fires where your IPs are located?
     
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  11. Scott No Mates

    Scott No Mates Well-Known Member

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    What's the risk?
     
  12. Ed Barton

    Ed Barton Well-Known Member

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    Not very great, but the consequences could be huge. I'm not saying don't have PLI or building insurance. Just wondered what the ballpark cost of standalone PLI was.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I would never have a house uninsured. $5k/yr is nothing compared to the cost of repair in he event of a fire, or if a car crashes through the front wall or similar. Plus it's deductible.

    It's just a cost of doing business to me.
     
  14. scientist

    scientist Well-Known Member

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    Thanks - some things to think about

    The way I see it is I generally avoid insuring things I can afford to replace. E.g. would you insure your $1000 dining table at $5/yr? $5 is nothing... but you would still probably pocket the savings. So in the same vain the argument "$5k is nothing" isn't really valid and I'm currently entertaining the thought of not renewing.

    As a term of contract of my loans - I guess I can't really get out of that one so I'll be renewing for this reason but if it wasn't for this I lean towards it being a negative value endeavour.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Do you have life insurance?
     
  16. Simon L

    Simon L Investment Property Buyers Agent Business Member

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    I would definitely insure a $1000 dining table for $5 a year. It would only take 10 years of use and abuse before it becomes unusable or something happens to it. $50 insurance to replace $1000 dining table is a no brainer
     
  17. MTR

    MTR Well-Known Member Premium Member

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    Jumping out of a plane without a parachute....yikes

    Insurance in Oz is cheap compared to what I pay in USA, evil necessary
     
  18. kierank

    kierank Well-Known Member

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    I have a simple rule with insurance (which I have posted a number of times on PC) and it is:

    "If you can't afford to lose it, you can afford to insure it".

    The corollary is:

    "If you can afford to lose it, you can afford NOT to insure it".

    But you need to understand what you might potentially lose.

    For example, my wife and I don't have life insurance. Our accountant and financial planner independently recommended that to us about 6 years ago. It took us about six months to get our heads around that one. Others in our situation wouldn't dream of doing that but we are comfortable with our approach.
     
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  19. scientist

    scientist Well-Known Member

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    lol yes after I posted that I realised I might've underpriced my fantasy dining table insurance - but in the real world I'm sure the actuaries get their pricing right, then add a fat fudge factor margin on top, more realistically the dining table insurance would cost you $100pa and exclude depreciation / accidental / wear and tear.
     
  20. scientist

    scientist Well-Known Member

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    No because family would be just fine without me :) :(


    That's the core of what I'm getting at in my OP. Barring contractual obligations to carry insurance, does it make financial sense if one can afford to lose the underlying insured asset - that's the question.
     
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