Betting against Insurance Companies

When you take out short term insurance cover on your possessions (excluding your car), insurance companies generally insist that your cover everything you own under one policy.

You are therefore insuring your carpets, curtains, books, furniture, kettles, pots, pans and (of course) your electronic equipment.

Generally thieves don’t steal books. Probably because reading is not a pressing issue in their lives.

When you become the unfortunate victim of burglary, your insurance company visits and revalues the contents of your house and inevitably reaches the conclusion that you are underinsured and that the avaerage clause of your policy should be applied i.e. your claim will be reduced to the percentage you have insured.

The alternative to short term insurance is to pay what you would have paid, in insurance, into your bond.

At the beginning (for the cautious) some people pay both the insurance and the extra bond repayment until they have built up a fund they are comfortable with.

The advantage of doing this is that when your insured items get old, insurance companies don’t buy you a new one, but nothing stops you from using your constantly building fund to buy the latest high definition electronic toy.

The trick is to understand the bet.

You are betting that you will be a victim and the insurance company (with the assistance of clauses in the contract about armed response systems, alarms and burglar guards – all of which are sensible defenses) is betting that you will not be a victim.

The question to ask is – “Who is winning the bet”?