Before I became a working adult I used to think that all insurance was a big scam: you pay loads of money every month to cover a most unlikely event so what’s the point? If I was ever asked to buy insurance I said ‘no’ without so much as thinking about it.
I relayed this view to a colleague of mine and he told me that he always insures what he cannot self-insure and in his own life that was mainly his home. By this, he meant that if his house was destroyed by some accident he couldn’t afford to rebuild it in the same way he could easily replace say, a stolen phone with another phone. He didn’t realize it but those words held sway with my financial thinking from that moment onwards.
Having been converted, buildings insurance became my first ever purchase of insurance. After a few home accidents: a broken toilet one time, plumbing damage the next, I decided that I also needed home care insurance; these type of incidents happen when you least expect them to and have a knack for hitting you when you’re the most broke. If you ever have plumbing trouble calling out a plumber to fix the issue will set you back £200-£300 easy, and that’s if it’s a simple problem.
Just before Christmas I had to make two insurance claims, a property I let out had a bad leak so the home care insurer had to be called in; then, because of serious water damage to the ceiling the buildings insurer had to come and correct that permanently.
My nifty filing system meant that I found both insurance contracts within ten minutes and knew exactly where I stood from a financial standpoint. If I hadn’t been insured I would be looking at an outlay of£4,000 to £6,000 and the likely loss of a tenant. I don’t have that kind of money just sitting around. As it stands, I only had to pay a £250 excess.
Home care and buildings insurance cost a combined total of £500 per year. This figure sounds exorbitant but as the above example shows when something goes wrong it could cost much, much more than that to fix. I can live without my phone, laptop, TV, even my couch but I need somewhere to live so I am willing to insure my home whatever the cost.
In late 2006/early 2007 I even took out private unemployment insurance that would cover my mortgage for 12 months if I ever lost my job. At £12-15 per month it was ultra cheap and the knowledge that my mortgage payments were covered gave me great peace of mind when the credit crunch hit in late 2007. Unfortunately, I had to cancel it in 2009 when the premium was trebled due to the recession and the large number of unemployed but by then I felt somewhat more secure in my new job.
So, next time you’re contemplating whether or not to buy insurance, ask yourself if you can self-insure the item in question. If not, buy the insurance.