The risk of being uninsured – a case study

Recently I was at a conference and at the final dinner was sitting next to a young lady who relayed an event in her life where she paid a huge price for thinking she could save some money by not insuring her car while she was enjoying a overseas holiday.

Her logic was the car would be parked off the street in her family’s driveway and no one would be driving it while she was away.

During her trip, someone has fire bombed four cars in her street, one of the cars being her’s.

I am not sure if she allowed the existing insurance to lapse and thought she would insure it again upon her return and before she drove it, or if she had cancelled the insurance. She did use the word cancelled in our discussion.

The result was her car was totaled and she was left with an outstanding personal loan of around $20,000. She did the right thing and paid off the loan but it was a very expensive lesson.

In my career, I have heard this type of story far too many times. In one case the car was stolen, in another badly damaged in a hail storm. In yet another it was only uninsured for one weekend, From Friday 4pm to start of business on Monday and yet on the Saturday evening someone broke into the garage and stole his pride and joy.

Similar stories are there with home and contents insurance, but her the uninsured losses can be greater as they can be with business losses. The most common here is cancelling the all important business interruption insurance.

One point that I would make about cancelling insurance mid-term rather than letting it lapse is that in the vast majority of cases the insurer does not refund the premium on a prorata basis, but rather charge what are called short term rates which means the saving in insurance is not going to be as great as you may think it would be. Short term rates are typically not charged if the property is sold or disposed off, just if the insurance is cancelled mid term.

So please remember, Murphy’s Law is alive and well. That law states that: anything that can go wrong will go wrong.

My approach to this has always been: hope for the best but plan and insure for the worst. It has kept me protected when Murphy’s Law raises his head in my life.