Cycling insurance

[vickster]

It's not frivolous at all.

You are paying the insurance company to pool the risk of your bikes being stolen with other people doing the same thing..

You may never have a bike stolen, or you may have umpteen stolen in one year, then none the next year and so on.

What you are doing is passing on the risk (and hence the volatility of you having to fork out on a new bike with cash) to the insurer. You are paying a known £50 for this transfer of risk. The term "risk" and what it means to you is very specific. As someone alluded to above, it's dependant upon how much value (or utility) that risk entails for you.

I meant blowing £100 eating out in one weekend

£50 on insurance is a necessity for peace of mind

I pay bupa £150 a month (get salary to cover most of it), that's definitely money well spent on insurance!

 

[srw]

The reaction people give when you challenge their dogma's, always give me a chuckle! Insurance is perfectly ok for catastrophic loss, but to cover the cost of bicycle loss theft or damage? Seriously?

Yup - seriously. As others have pointed out, there's a big difference between utility and cash. I think you might need a lesson in elementary behavioural economics - before the lesson in finance.

Which by the way, in extremely unlikely if you take proper precautions and avoid unnecessary risks.

Sorry I didn’t realise CC had a branch of the Investing Gestapo. I’ll get my coat then… or maybe not. Have you got something against investing, or do you just dislike others’ opinions?

Says the honourable member who thinks a 6% annual return is achievable without taking extreme risk.

I'd love to know your recipe for a 6% annual return - because frankly you're delusional if you think you can achieve it without the sort of downside that will see you working till you're 80 in the reasonably likely scenario that you get it wrong.

 

[Thegreatthor]

@Thegreatthor how did you get on with your insurance company?

Not rang yet, bit of a busy day or three this week?

 

[confusedcyclist]

I'd love to know your recipe for a 6% annual return

As was mentioned previously in the thread, if you buy and hold and don't sell your investment (i.e. house, stocks or whatever the hell you want to invest in) when the economic bubbles burst (housing prices crash, stock markets fall), 6% is very achievable over the long run and I think you will find a conservative figure, the fund I linked to previously returned 11% annually for the last 3 years, granted this will not happen year on year, as some years the return is much worse (i.e. recession in 2008), investments still return dividends, but their value falls with this, which is why we give the figure of rounded 6% return over a long term. Eventually when the economy recovers share values rise again and your no worse off than before the crash.

Yes, the markets will slow down at some point, but by avoiding selling your investments at fire sale prices (time of economic slowdown) you thereby eliminate almost all the risk, your capital keeps on growing regardless of how shitty the economy might be doing over one trading week every 7-8 years.

What we cant protect our investments from is the eventuality that the world economy spins into economic meltdown, all international trading stalls and we revert to the dark ages due to peak oil (if you believe in it?), I don't think your insurance company is going to be paying you out so both sides are losers. But that's another story.

Time for some homework @srw , go find out for me how much the global markets have grown since 2008 (the last crash), then come back and state that I am delusional.

For those worrying about the utility of their cash, if it takes you more than a few months to save up £1500, this strategy will never be for you. Why? Because you are enjoying the utility of your money too much to gain from it in the long term, that's the trade off.

 

[mythste]

For those worrying about the utility of their cash, if it takes you more than a few months to save up £1500, this strategy will never be for you. Why? Because you are enjoying the utility of your money too much to gain from it in the long term, that's the trade off.

Testify.

 

[srw]

As was mentioned previously in the thread, if you buy and hold and don't sell your investment (i.e. house, stocks or whatever the hell you want to invest in) when the economic bubbles burst (housing prices crash, stock markets fall), 6% is very achievable over the long run and I think you will find a conservative figure, the fund I linked to previously returned 11% annually for the last 3 years, granted this will not happen year on year, as some years the return is much worse (i.e. recession in 2008), investments still return dividends, but their value falls with this, which is why we give the figure of rounded 6% return over a long term. Eventually when the economy recovers share values rise again and your no worse off than before the crash.

Yes, the markets will slow down at some point, but by avoiding selling your investments at fire sale prices (time of economic slowdown) you thereby eliminate almost all the risk, your capital keeps on growing regardless of how shitty the economy might be doing over one trading week every 7-8 years.

What we cant protect our investments from is the eventuality that the world economy spins into economic meltdown, all international trading stalls and we revert to the dark ages due to peak oil (if you believe in it?), I don't think your insurance company is going to be paying you out so both sides are losers. But that's another story.

Time for some homework @srw , go find out for me how much the global markets have grown since 2008 (the last crash), then come back and state that I am delusional.

For those worrying about the utility of their cash, if it takes you more than a few months to save up £1500, this strategy will never be for you. Why? Because you are enjoying the utility of your money too much to gain from it in the long term, that's the trade off.

If you pick your starting point, any result is possible. But under your strategy, you would have lost our big-time in 2008 - which is why the returns are high. It's compensation for risk.

No homework needed. Capital markets are just creeping back to where they were in 2008. Allowing for dividend reinvestment they're still well short.

 

[NorvernRob]

Insuring my two bikes worth £7k was around £30 on my home insurance. The total amount I pay is just over £200 per year for everything, and that's a premier policy which also includes legal cover, accidental damage etc. The bikes are insured at home, whilst in a car, locked in an outbuilding, locked away from home (has to be a gold secure lock, not that my best bike is left anywhere anyway) or for accidental damage caused by me.

I'm not Carol Vorderman, but even with compound interest I'm guessing it would take me at least 50 years to save up £7,000 at £30 per year.

If my bikes were stolen I'd rather have another one this year, not when I'm 90.

For those worrying about hikes in premiums if you claim, 1)Then don't bother with insurance in the first place, and 2) We were burgled in 2008 and had around £4,000 worth of stuff stolen. It was all replaced new for old, our premiums went up by around £200 the first year, reducing down until within 3 or 4 years we were paying no more than before. It probably cost us around £500 in extra premiums to claim £4,000, in fact I'm 38 at the moment and I've claimed more on home insurance than I've paid in my life so far.

 

[confusedcyclist]

Allowing for dividend reinvestment they're still well short.

Clearly someone has skipped investment 101.

The risk is only high if you are in the business of selling your shares after a crash – which an informed investor would not do willingly. No sane person invests in the market on a short term basis, not unless they also enjoy spending their days trying (and failing) to earn their living gambling in a casino. If you think like a merchant who wants to make a profit, you will not buy wares high and sell them low. The principles of investing are exactly the same. The only people who lose in a crash are day traders who are gambling on quick wins or people allow their emotions to control their financial decisions when faced with their shares values plummeting (after all, who wants to watch 1500 drop by 40%? Well, the people who know it will grow many times more over 60 years)

You are 100% right about timing yourself in the markets being a factor, however this is only a concern for a short term investment, we are talking here about the opportunity cost over a lifetime. So, whether you started now, 2008 or during the great depression is irrelevant.

Even if you were unlucky enough to buy near the peak of the market, you would have to wait several years for the economy to recover for your portfolio to return to pre-crash levels if you think only about the value of your portfolio. However, you are dead wrong about reinvesting dividends. If you did reinvest, your portfolio would reach pre-crash levels much sooner and continue growing beyond the initial investment, this is what gets you your average 6% annual return over the long haul.

The value of shares is dictated by their perceived value (the amount investors are willing to pay to receive continuing dividends). When market bubbles burst companies make less profits, the amount paid by dividends fall, so do the value of shares as they are perceived to be of less value. However we know the market always grows over the long haul. You need only look at graph of the value of the markets since 1890.

If every time you receive your dividends you decide to buy more shares, the amount you receive in dividends increases each time. Even during the recession companies paid out dividends, albeit less than at the peak. Because of economic hardship, and the value of shares are depressed this means they are cheaper to buy so even with reduced dividends, you continue to buy shares. By the time the market returns to growth, you own more shares and the value of your portfolio will swell.

The maths is complex, and I am not here to convert or dupe a soul so I will graciously bow out. However I hope you now realise that paying £50 a year for a service that is unlikely to be utilised if your risks are managed (this is why the insurance companies make profit after all). Clearly then, saving your £50 annually and instead investing the money is obviously a winning strategy.[/QUOTE]

 

[confusedcyclist]

in fact I'm 38 at the moment and I've claimed more on home insurance than I've paid in my life so far.

Of course you would say that, you beat the system but most people don't.

How much more could you have done to prevent bike theft from your home?

For instance, were each of these bikes D-locked to a ground anchor, or just easy pickings for a willing thief?

The opportunity cost is not really about buying what you have when you are old and decrepit, but saving your expense now knowing what it could be doing instead.

 

[BrumJim]

I find myself worryingly agreeing with confusedcyclist. With insurance (of anything), most people consider the affordability and benefits rather than the financial prudence. I'm sure it won't take too long to find someone who will insure a new washing machine, as its only £10 a year, but won't insure their house contents, as its £300 a year (OK, sounds steep, but lets assume a high risk area).

The point about bike insurance is that if you aggregate the risks of all items that you have insured (including PPI and all that rubbish), you are better off cancelling all similar insurance policies, and sticking with the stuff that you cannot afford. Like your house, full set of contents (fire, flood), and third party on your car.

The trick is modifying your mind set. If you do get something stolen, or breaks down, or other incident that you could have insured against, do you have the assuredness to say "Oh well, at least I've made the right financial choice in the first place."

 

[confusedcyclist]

I'm sure it won't take too long to find someone who will insure a new washing machine, as its only £10 a year

this made me chuckle as only the other day I was in argos and overheard someone buying an extended warranty on a hair dryer worth 20 quid... After all it was just £2.99.

 

[400bhp]

Eh @srw. If only we had read this thread prior to investing All those years in financial maths study.

 

[srw]

Eh @srw. If only we had read this thread prior to investing All those years in financial maths study.

I know. I could have retired by now. Apparently. Instead I'm stuck in the 8-6:30 grind doing a fascinating and rewarding job, helping hundreds of thousands of people put their lives back together each year.

 

[confusedcyclist]

Retirement is not about giving up work that has value, but about uncoupling your labours and the need to work to pay the bills. Once you have accumulated enough wealth you are in a position to "retire". Typically at the age of 65 by contributing the bare minimum to a pension investment, or by carefully and deliberately managing your finances you can bring this date forward considerably. Once you have reached this level of wealth where you no longer need to work to pay the bills, you have a choice to sit at home and do nothing, or remain in a rewarding career beyond retirement age, either is perfectly acceptable.

If you do remain in work beyond retirement, there will come a day in which they money you earn is no longer needed and you can give away to the less fortunate. You also have to option to volunteer for good courses, build your local community, start your own business ventures, care for a dying loved one, you have no obligations to work to pay the bills, you are free to do as you please without a worry about money.

You can subscribe to the standard consumer lifestyle by spending everything you earn and not saving a penny outside of savings for typical BS like the next holiday, and there may come a day where you would rather be at home with your dying mother or father, spouse, sister, brother, son or daughter but the boss says, oh no, we've got work to do, and the bills keep on comming.

 

[Profpointy]

I've never read such condescending bullshit in my life.

maybe, maybe not, but it's still true though isn't it?