How much are your possessions worth?

May 11, 2015

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At the weekend I performed the annual task of renewing our house insurance. Naturally it wasn’t long before I ended up on a price comparison website to make the process of finding a competitive quote reasonably painless¹.

While filling in the lengthy forms I hit this question which made me stop and think:

When you start adding up how much it would cost you to go out and buy a replacement for every single item in your house you soon come up with some pretty eye watering amounts, or at least I did.

If you’re reading this at home, take a look around the room and mentally add up how much it would cost to go out and buy replacements for all the items that room contains. Then do the same for all other rooms, the garage, the shed, the loft, under the stairs etc etc

Of course the more pertinent question to ask someone like myself that is seeking FI/early retirement is this:

How many of your current possessions would you replace should an extreme loss event occur?

Before I even got close to an answer to either of these questions I had a sudden urge to purge! Of course the greater the sum you enter into the box above the greater your annual premiums will be.

Next on the form there were a few other sections that made me question my usual cover levels:

Cover away from home

Do I really need to insure my laptop to be covered while I’m away from the house?

Well I actually take my laptop with me quite regularly so I can write/work on my daily train commute and it’s not unusual for me to take it on holiday. However my days of drunken nights out after work are long gone so I’m very unlikely to leave it in the back of a taxi or in a tapas bar.

Further more, computers tend to have a propensity to become obsolete and be replaced every few years. If they only last 5-7 years does it make sense to insure them for the intervening years? Without wanting to tempt fate….I’ve never been burgled, never spilt Ribena onto a hard drive and we don’t own a dog with a propensity to chew.

Valuable Items

I’m proud to admit that I own a bicycle that is worth more than my car. To justify it I tell myself it saves me a huge amount of money in the long run even if I know it’s not entirely true.

At the same time I’m a trifle ashamed to admit that it is one of 4.5 bikes currently in my possession². Previously all of these bikes have been listed on my policy and insured separately.

On reflection if they all got stolen³ would I really replace them all? The answer is unequivocally no. I’d replace the rusty old fixed wheel commuter, one of the race bikes and the tandem only. So with that decided there is clearly no point in me insuring them all.

The same approach was taken when assessing some other items deemed of ‘high monetary value’.

Run Your Own Insurance Company

This article over on Monevator puts over a great explanation across that explains exactly what you get in terms of value when you buy insurance.

…if you are an average risk customer, every time you pay £100 in premiums for your car insurance:

You get £70 back in claims

It costs £25 for the insurance company to make it all happen

The company earns a £5 profit

In other words, you pay £30 for peace of mind for every £100 of insurance you buy.

Obviously you don’t get £70 back every year. In fact most of the time you get nothing back, because you don’t make a claim.

The argument is pretty compelling and one that a diligent risk manager like myself is more than happy to back up with firm action. When it comes to house contents insurance I’ve decided to increase the risk of losses that I run by lowering the amount of insurance I buy.

While selecting my policy options I downgraded some of the levels of cover we previously had in place. I’m happy taking on the risk of future losses on smaller household items and possessions. As I get older and my passive income increases, I become more comfortable with the idea of running these risks. Besides and perhaps more importantly, I am placing less and less importance on material belongings in the first place.

It’s the big ticket losses like house fire, structural problems and flooding that I want to be protected from. I don’t want to pander to my instinct natural human instinct of loss aversion any more than I have to.

So after combining this reduced cover with the fact that most insurance companies try to fleece their customers upon renewal of their policy, the amount I paid to insure our home this year is roughly £350 less than the initial renewal quote.

This is by no means a risk free saving. Should I suffer losses in the future you’ll likely find me crying into my claim form as I absorb the losses myself…at least I’ll do so knowing that I made a significant saving along the way back when I had it all.
Notes:
¹ I’m aware that not all insurance companies participate in price comparison sites.
² 1 x carbon race bike, 1 x fixed gear commuter, 1 x aluminum framed race bike (my first), 1 x mountain bike i’m ‘looking after’ for my brother in law and the 0.5 is my half of a tandem 😉
³ They’re all stored in a reasonably secure alarmed garage, locked to each other and secured to a ground & wall anchor

Comments

19 responses to “How much are your possessions worth?”

Dividend Drive

May 11, 2015

Really good article, UTMT. I have to put together a new contents insurance policy soon and had not, really, thought about it from that perspective. i don’t have a huge amount of stuff and even less that is high value. I have a laptop, smart camera, bicycle (which is kept in the house), and some expensive books. However, by and large that is it.

Seriously thinking what I actually would want to replace if it was stolen/went up in flames is a really good idea. I will do that when I get around to it!

Some time ago I set about selling as much of my excess stuff as possible (read http://bit.ly/1DrdgUQ if you’re interested in my progress). Ultimately, what you say is a companion to The Escape Artist’s idea of “cloud storage for your possessions” (read http://bit.ly/1yHJnOc). By having the money you would have caught up in possessions in equities, bonds etc. you don’t have the danger (insurance and otherwise) of storing it but can still get it when necessary!

Thanks a lot for the fascinating post. I will add it to my weekly round up for this Saturday.

PS: I don’t own a car but I do own a very expensive folding bike (a Brompton) which I justified in the same way as yourself. I used to have a beautiful Dutch bike for everyday “pottering” use but it was, sadly, stolen. The Brompton has probably already paid for itself!

Reply
1. Under The Money Tree
  
  May 12, 2015
  
  Dividend Drive,
  I was getting on my train yesterday and there was a Brompton owner fiddling with his folder on the platform. He was so busy trying to put it into a bag (!) that he ended up missing the train! I presume he’d just bought it at the weekend…can’t imagine the bag will last long!
  
  Reply
  1. Dividend Drive
    
    May 12, 2015
    
    Haha, I saw someone doing the same thing once. Tussling with the bike on a train platform. They were bending and contorting it so vigorously the wrong way I just had to go and give them a hand! I have never had someone so strenuously thank me in my life!
    
    I never understood the bag to be honest. Bromptons–like all bikes and especially folders–tend to get battered around anyway and the oil on your clothes issue of most folders is not a problem from Bromptons.
    
    I don’t take it on the train very often anymore. But as I move around quite a bit (although I have been static for a little while recently) having a tiny bike is a boon! Folding is straightforward as long as you get the order right! Most people get the seat post wrong at first (that’s what I did as well!).
    
    Luckily, as the commuter had a bike he could cycle to work for the last leg…haha!
    
    Reply
ermine

May 11, 2015

The slight fly in the ointment here is that if you have something like a fire then insurance companies are scum, and they will send round a representative called a loss adjuster.

Said individual is hired by the insurance co to adjust their loss downwards. he will look to maximise the value of your possessions, from the charred remains of which he will take lots of pics. They will then say oh your contents was insured for £200,000 but from the evidence it was really worth £300,000 so we will scale down your claim by a third or a half depending on the Ts and Cs

So you need to do the decluttering first 🙂 Disappearing the remains of the stuff you uninsured will leave odd looking holes in the scattered junk on the lawn and they’ll make it up from there because you clearly tampered with the evidence.

Reply
1. Under The Money Tree
  
  May 12, 2015
  
  Ermine,
  You raise a completely valid point……insurance companies have you by the short and curlies no matter what you do!
  
  Despite our successful ebayathon earlier in the year the de-cluttering continues. To be honest if the place did burn down I’d serious investigate downsizing. It would also be very interesting to see what possessions we would actually buy/rebuy if we were starting from scratch.
  
  Reply
Nathan

May 11, 2015

Ha, was just doing the same renewal myself. I think this year was the first time I actually thought through what I actually needed and that need only be enough to cover us against really serious loss. Sufficient cover with a large voluntry excess is actually half what I paid last year, which was itself half of what I paid the year before. Stuff like my bikes (now 18 years + old, in the Triggers broom sense ) and laptop (now 6 years old) are just not worth calling out for insurance anymore. However whatever I do, my landlord insurance is just stubbornly higher.
The only bit of perhaps irrationally fear based insurance I still have is cycle insurance on my commuter bike which I use on my odd foray into the capital, and that’s mostly for the personal injury coverage!

Reply
1. Under The Money Tree
  
  May 12, 2015
  
  Nathan,
  Yes, bikes in London are probably worth the premium. Thankfully I leave mine at the station outside London 🙂
  
  Reply
2. BeatTheSeasons
  
  May 12, 2015
  
  That’s very concerning, but on the other hand many policies seem to give round figure coverage as standard, without asking too many questions. I’m not sure how they could then adjust your loss downwards in those circumstances. If they can it’s a big scandal!
  
  Reply
Tim O’Neill

May 12, 2015

A nice article. I think big savings can also be made on buildings insurance by insuring the re-build cost only. So, say if your house is worth £200k, a fair bit of that will be the value of the freehold land it is sitting on. If you experience a calamity and your house burns to the ground, it should cost less than £200k to re-build. How much less is hard to say and will be very variable. But a good local builder could probably give you a reasonable estimate of the re-build cost.

Reply
1. Under The Money Tree
  
  May 12, 2015
  
  Tim,
  Of course the rebuild costs can and will vary wildly from the ‘valuation’ of a property. I wonder how many people actually go to the trouble of investigating what it would actually cost to rebuild their pads. I wouldn’t be surprised if 95% of people just guess and put any old figure down. That’s an area of potentially massive dispute should you be unlucky enough to have to make such a claim.
  
  Reply
2. Borderer
  
  May 12, 2015
  
  The Royal Institution of Chartered Surveyors has a calculator at
  calculator.bcis.co.uk.
  
  Reply
  1. Under The Money Tree
    
    May 12, 2015
    
    Borderer,
    
    Thanks for the resource!
    
    Reply
BeatTheSeasons

May 12, 2015

This article made perfect sense to me up until the penultimate paragraph where you mention reducing your premium by £350. How much was it in the first place?! Mine was less than £100 last year. I think I’m going to check my policy wording very carefully this time round.

Reply
1. Under The Money Tree
  
  May 12, 2015
  
  My policy is a combined contents & buildings policy. The renewal figure I was quoted was roughly £700 which was a significant increase on what I paid the ear before. It was also one with an ‘unlimited’ contents cover and included allowances for ‘valuable’ items which as I’ve mentioned are mainly depreciating assets that I’m now comfortable running the risk on.
  
  Reply
weenie

May 12, 2015

Hmm..my cover is up for renewal next month. I have to admit that I think I tend to put a low figure as most of my ‘stuff’ is the variety that has more sentimental than monetary value. But yeah, I guess I should consider having to replace carpets, sofa suite and what not properly. Cheers for the timely reminder!

Reply
Anastasiya Shyrina

May 22, 2015

This post made me take a look at my appartment and analyse my spending habits.
In fact, I realised that I was subscribed to a number of magazines/newspapers I no longer have the time to read. During the last couple of months I switched to the online media resources and get most of my news there. Now I plan to cancel all unnecessary subscriptions. This will save me some cash. Thanks, Under The Money Tree, for bringing such issues up.

Reply
BeatTheSeasons

May 30, 2015

I’ve just renewed ours. The premium is just under £100 for a rebuild cost of £324,000 and contents of £50,000. I’ve got no history of claims, I’ve excluded extended accidental damage, and set a voluntary excess of £400 (with a higher excess in some areas). We don’t really have much in the way of valuables. I think that’s a pretty reasonable price to pay to cover the risk of a major catastrophe.

Reply
1. Under The Money Tree
  
  May 31, 2015
  
  BeatTheSeasons,
  Sounds like you did similar to us. It’s so easy to just click through on the default options and be over conservative on things like excesses.
  
  Reply
John B

August 10, 2015

The golden rules are 1) Insure things you are legally obliged to, 2) only insure against losses you can’t afford to bear.

That means car, house and life for most people, and medical insurance if going outside the EU.

As the overhead tends to be fixed, the worst value policies are fiddly sums for insuring household appliances.

Reply

How much are your possessions worth?

Run Your Own Insurance Company

Comments

19 responses to “How much are your possessions worth?”

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