Contents Insurance

This post follows from my last post on insurance. It was my situation with contents insurance that inspired me to write the original article.

This post follows directly on from my previous post. In fact it was the content of this post that inspired my current views in insurance as a whole.

What student insurance?

After living in Birmingham for my University and renting as a student for three years, I moved to London following a job offer. I now rent a fully furnished flat with three others.

I have few possessions: clothes, kitchen crockery, cutlery and cooking equipment, a second hand HD tv, a laptop, and a phone (that pretty much remains on my person at all times). In all it would probably cost a generous estimate of £2,000 to replace it all.

Being the concerned folks that they are, my parents were horrified to discover that I had no contents insurance for my possessions in the case if theft or damage of my possessions.

Being the respectful son that I am I searched on no less than 4 price comparison websites. The best deal that I managed to find was for £227 per annul. This price was under the assumption that the minimum net worth of my possessions was £5000. I must point out that this was the minimum that any comparison site would allow me to state. Given that the aggregate value of my possessions was £2000, this price for insurance represents over 10% of my contents.

Never needed contents insurance

I opted not to buy any contents insurance. This is because I reasoned that in my area I was not likely to be burgled. Furthermore if I was unlucky enough to be burgled just once in 10 years I would have lost out. This is because if I had insurance and was only burgled once in 10 years, I would have ended up spending more on insurance than I would ever have had paid out in claims. It's a sad situation where I NEED to be burgled a few times to get paid back. Furthermore, having been burgled my annual premiums would increase.

As a result of this calculation I have reasoned that until my contents are worth far more than £5000 it is not worth the money for me to buy contents insurance.

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Don't buy insurance!

Insurance: the ins and outs of why I believe that it is not always a good thing to purchase insurance. Have a read and let me know what you think in the comments box below.

I realize that the title of this post is fairly controversial. This was partly to draw in the reader and partly because in some circumstances I truly believe it is not wise to purchase insurance (unless of course it is a legal requirement).

Insurance Market Scam

I believe that insurance is bad for your finances. Insurance markets exist to make money. This means that they need to take in more money than they ever pay out. To do this they need to work out on average how much each person will claim, add on a premium, and this is the price that insurance companies charge each person. Due to this (simplified) set up it is clear that on the average, a person will probably pay more into an insurance policy than they ever claim back over their life time. This is why I advocated third party car insurance over fully comprehensive (assuming the car is of a low enough value).

Some people may argue that "it's all well and good talking about the average person, but I am never the average person!". Furthermore they may point out that insurance may be useful if there is suddenly a large amount of damage that they would need to pay for.

However I would rebut this argument. Even if you find yourself needing a large settlement from an insurance company, you will eventually lose out in the long run as you will be charged higher premiums in the future. Over the years the insurance market will get their money back, like it or not!

Scam Solution: Insurance Investigation

So if insurance companies will always make more money off you than you will ever get back then should you ever buy insurance?

For some people who are totally risk averse I would suggest that for peace of mind they should buy insurance. For others who are not in a position such that they have contingency funds and emergency cash stored up then I would also recommend purchasing insurance as you don't want to find yourself in a situation where there needs to be a large payout and the cash isn't available and so you may have to take on debt, which is never good! (click to find out how to reduce your debt).

Build savings as a substitute for insurance

Finally, if you're in a position like me, and you have savings (click to find out how to build your savings) then you may wish to take an alternative route. Obviously in the case of car insurance it is a legal requirement to purchase insurance. Therefore I strongly advocate purchasing car insurance as you can find yourself in all sorts of trouble otherwise. However there are some forms of insurance such as phone insurance where I would suggest to you: don't buy it. Instead save the money that would have been spent on insurance each month. That will eventually be your contingency fund.

Readers, is there something wrong with my logic? Am I foolish for not purchasing insurance?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Lonrho Plc - Buy/Sell?

Lonrho Plc is a FTSE250 company that I have held shares in for a few years.This article is an honest analysis of the share and outlines my logic for the future.

 Lonrho Plc - Original Sin

For me Lonrho Plc has been a story of investment blunders. A couple of months ago I berated myself in a post for purchasing shares in Lonrho based on a tip from a friend. Of course this is and always will be a mistake and I would strongly recommend that nobody ever buys shares for this reason.

My second failing was to hold onto the shares knowing my original failing. The question is: will I continue to make this mistake? Should I sell and crystalize my loses - about 20% to date?

My original purchase of the shares occurred early in my "investing life", about two years ago. I was young and naïve, or at least younger and more naïve than I am now! I thought investing was all about making a quick buck. I bought the shares at 11.13 pence with the intention of selling when the price rose to 14 pence. Since that time, little has happened in terms of the share price. I probably should have sold as soon as I realised that my reasons for investment were based on shaky ground. A few weeks ago I came to my senses and decided once and for all to make a decision on Lonrho Plc. I dug into financial statements and news on the company since 2007 and reached some conclusions.

Lonrho Plc - A lucky mistake?

Lonrho is a company with a rich 100 year history that invests primarily in hotels and infrastructure in Africa. It has made loses for several years and has only recently started to generate a small profit. It has not issued a dividend in (at least from what I can see) the last 10 years. On the plus side the management seem well experience with knowledge of the market and Africa. Their revenues, profits and assets have growth every year over the last five years. After the progression of the likes of China and South Korea over the last 3 decades investors may looks for new areas of growth. This may well come from Africa with its large population and plentiful natural resources.

You probably think that I am trying to convince myself that my original investment was a good idea. However I would argue that I have spent a great deal of time, effort and thought analysing this share. I have under 2% of my wealth currently tied up in Lonrho and am sitting on a relatively large amount of cash at the moment. As a result I am inclined to continue to take a punt on this investment. If it were the case that I was short on cash and there was a clearly superior opportunity out there then I may have sold the shares in the last week or two. For now I am once again setting them aside for the time being. If this investment is ever going to pay off it is definitely a long game and if the company continues along the same path it could be a major player in a newly emerging market.

Readers, what do you think about this decision? Is my logic flawed? Am I guilty of making the same mistake twice?
Let me know what you think by posting in the comments box below. All thoughts welcomed however controversial (just as long as it's not abusive or spam!)

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.


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