Opting to be uninsured

Discussion in 'Investment Strategy' started by scientist, 24th Sep, 2016.

Join Australia's most dynamic and respected property investment community
Tags:
  1. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Obviously, my answer is yes.

    But, having said that, we have car insurance, building insurance, contents insurance, landlord insurance, ...

    I think it is a personal choice and comes down to whether one sees value for money.
     
  2. Player

    Player Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,097
    Location:
    Paradiso
    Insurance is optional. If property investors don't want to carry insurance, they might consider selling down and buying shares, ETF's, etc. Oh, wait even those portfolios can be insured.

    I could never ever fathom owning something that has a high replacement cost and also carries with it the liability to have invited or uninvited guests sue you for damages relating to injury; real or otherwise. There is a difference between letting landlords cover go if the portfolio is large and cashflows so strong, however to not have building insurance................. :oops:

    And a warning to people who have their buildings insured at what they consider the lower end to save a couple of hundred buck$. This probably means you are under-insured and in the event of a major claim you won't get the frugal amount you've covered for; this will be adjusted downward by the insurer proportionately to what replacement cost actually is. You might only get 50 or 60 percent of what you've nominated. False economy IMHO. :cool:
     
    Last edited: 24th Sep, 2016
    Joynz, kierank and Ed Barton like this.
  3. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne



    The Y-man
     
    MTR likes this.
  4. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne
    @scientist

    Remember that it can be quite a "minor" problem that suddenly turns into a very expensive one.

    We had a plumbing issues in one of our IP's where a slow leak inside the wall cavity caused all sorts of damage on the walls (which only became obvious when it fell apart of course...). The pipe could only be got to by breaking in through the brick outside (single brick veneer construction. Once repaired, the wall had to be bricked up and re-rendered (to match the rest!) as well as all the internal repairs.

    That all came through on Building insurance - well worth it!

    The Y-man
     
  5. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,626
    Location:
    At work
    That is the second most idiotic thing I've ever seen.
     
    Ted Varrick likes this.
  6. dan2101

    dan2101 Well-Known Member

    Joined:
    8th Jul, 2015
    Posts:
    586
    Location:
    NSW
    I don't bother with landlord insurance. All my IPs are in decent areas with good tenants. Never had a claim and saved a **** load of money over the past 10 year st Even if a tenant went through and smashed every door and window in the house I'd still be way up.

    Have never really considered not having building insurance though. It's a greater risk but if you save $5k per year and you don't claim for 20 years....

    It's a big if though. I wouldn't be swayed by people saying it's stupid. You know your own circumstances and how much it would hurt if your house burnt down.
     
  7. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    Well, if your willing to carry the risk, then that is all that matters really.

    I known many people who had property, cars, business etc and carried NO insurance for anything, and I am not aware of anything going wrong anywhere, nothing major, but that could be luck (read I think it is), but the thinking was in saving a large sum every year and like you, they had large income and cash and equity, basically underwriting self.

    The banks ask for it, but they do not check on it, I never been asked in donkeys years, they are probably the same, insist in the first instance, then know there are risks or people will change policy etc

    Also, the house is usually not worth much.

    Personally, I would not do it, you can shop around and take steps to lower insurance, 5k is cheap, but if my LVR was zero on multiple places, I would def modify what I cover and am paying for.
     
  8. scientist

    scientist Well-Known Member

    Joined:
    23rd Jul, 2015
    Posts:
    835
    Location:
    sydney
    Hang on hang on so is this how it works:

    Building's actual replacement cost is $300k but I think I'm smart and only insure it for $100k because I reckon even if it were a big fire, I'd be able to reframe and regyprock and reroof the thing for $100k. If a $100k event does actually happen, will they pay me $100k or 100/300 = 33% of 100k = $33k?

    I feel like the earlier dollars of damage are much more likely to happen compared to the later dollars of damage, but from playing with quotes online they price linearly... sorry geeking out here, basically trying to find sweetspots
     
    Last edited: 24th Sep, 2016
  9. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    I agree, pretty stupid to jump out of a working plane probably reveals my risk tolerance :)

    He only just made the side of the net too.
     
    Bran likes this.
  10. Marg4000

    Marg4000 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,377
    Location:
    Qld
    If you insure your $300K house for $100K then the insurance company is covering one third of the value.

    Any claim will be paid at the same proportion.

    In a total loss, you will get your $100K.

    In a partial loss, which is far more likely, you will get one third. After all, that is all you have insured.
    Marg
     
  11. bumskins

    bumskins Well-Known Member

    Joined:
    16th Aug, 2015
    Posts:
    528
    Location:
    Sydney
    Unlike others I dont think its an entirely crazy proposition if you have a decent number of properties. You should always be looking at the value you derive from goods and services.

    You'll find the more properties you have the more sense it can make. A lot of bigger companies start self insuring for things like their vehicle fleet/work cover.
    People need to remember that insurance premiums are written to make a profit over the long term.
    When you only have a few properties the loss of income or capital of 1 property is proportionally large as you increase the number it is not.

    As others have said, insure what you cant afford to lose. But otherwise look at the risk/return.
     
    Blueskies likes this.
  12. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    Yeah, they ain't going to fully cover if your under insuring, they are always looking for ways to get out of or lower claim costs/payments.

    If you want to save, but can't take the total risk, do what Simon mentioned, say the house is worth 300 to replace, work out what sort of money would have you in front if there was a total loss, maybe for the location insuring for 200k is fine & if a total loss kicking in 1-150k for a much better property overall works.

    But also each area will be different, in one place I insure it really makes bugger all difference to the premium if house is insured for 150k or 350k, but in other locations it makes a big difference, if you are insuring in an area that gets wild weather, probably a huge difference.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    What was the first?
     
    Danyool likes this.
  14. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,626
    Location:
    At work
    Not sure, but I try not to exaggerate :)
     
    Jess Peletier and Marg4000 like this.
  15. Redwing

    Redwing Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    7,431
    Location:
    WA
    Had a friend who would self-insure on his boats, every 2-3 years if he didn't make a claim he had a free boat

    Note- it had been 6-8 years between any claims
     
  16. Joynz

    Joynz Well-Known Member

    Joined:
    5th Apr, 2016
    Posts:
    5,751
    Location:
    Melbourne
    Must have been a cheap boat to start with!
     
  17. DaveM

    DaveM Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    3,761
    Location:
    Adelaide & Sydney
    Doesnt work that way. As Marg says above, of you insure for 1/3rd actual you get 1/3rd the payout
     
  18. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    Dave, don't think you read what I have written in the quote or prior, we are on the same page :)
     
  19. fullylucky

    fullylucky Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    529
    Location:
    QLD
    bank might be upset. if you still have a loan on the property. technically it's still banks so banks might try to convince you and say you are legally obligated to do it. etc etc.
     
  20. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    What the bank will likely do is nothing if you keep paying, but they will get you to rebuild, or if they feel the block more than covers them, maybe they will stay out of it, will depend on them really. Technically you cannot make any changes without informing and getting consent, but people do this all the time, including demolishing.

    But what will happen, is if you are short of money, or you try and walk away, you will be up for any shortfall if they sell up.