Is insurance a luxury or a running cost?

Is insurance a luxury or a running cost?

If you look at many a website at the moment you may be aware of the number of properties on the market in southern Europe.  These are properties that are for sale at a much reduced price from what they were a few years ago and before the economy in the area started to struggle.  The high numbers of properties built at the time of the boom have now resulted in an over supply of the market and there are the sad cases of those who bought at top prices now having to reduce them to sell up due to circumstances changing.

The properties look tempting and more within reach than at anytime in the last 5 years. I am tempted to chase the place in the sun like anyone would be.

Obviously you must also consider the running costs of the properties.  There will be inherent taxes or local charges to pay like everywhere.  The utility bills need paying every month or every quarter, and then there is the insurance.

How do people perceive the insurance?  Well we all have the choice to take it and lets be honest if we knew what was going to happen we would know whether we needed it. There are people who don’t have it, there are people who would not comprehend not having it, and then are those that want it but are not prepared to pay for it.  But is it a luxury or a running cost?

There is no simple answer as it depends on the individual.  But one thing that the individual must understand is that their perceived view of the risk to their investment may not the same as another person, or organisation in the case of the insurer.  The property itself is exposed to the possibility of risk from certain insurable perils that could result in an extremely large bill for repair.  The transfer of this financial risk to an insurance company is an option, but it comes at a price, which is the insurance premium.  But lets be honest we all share the “nothing will happen to me” mentality – that goes for me as well!

Whether the individual agrees with the premium or not, is to some extent not the issue, as that is the premium offered by the insurer to transfer that risk.  The customer either decides not to take insurance which then means the risk of paying out for any damage caused by insurable perils stays with themselves or they accept the premium of the insurance company to transfer the risk.

It’s an interesting conundrum.  Whilst its human nature to begrudge the cost of insurance as so called “wasted money” if nothing happens, its to some extent wasted money by the paying of the taxes for the property itself.  But whilst the taxes are gone, at least the insurance offers some protection in return for the money received.  The same wasted money comment could be said for Life Insurances, Mortgage protection, Loan protections if they are never used, or even keeping the heating on at various times of the year could be claimed to be wasted money. It depends on the individual view.

So is it a luxury?  Is it a running cost?  That depends on whether an individual’s glass is half full or half empty.  But whilst a bargain can be found at the moment in terms of the property, it’s a bargain that is surely worth protecting.  The issue is does the individual value the money more now in their pocket by not paying insurance than saving the money later on a possible claim.  Or do they think that there is no need for the insurance.  I suppose it’s the same logic that we all have as drivers in thinking that we are all safe drivers and will never crash the car.  It’s a legal requirement to have car insurance to drive; we all have to have it, but how many of us would purchase the insurance if it wasn’t a legal requirement?