Financing Insurance?

EdKing · Jun 25, 2002

I have my home owners insurance through Farmers and Mechanics. My agent recomended a farm policy, which makes it easy to add equiptment and exterior buildings, even livestock. When I got my tractor, I just went to his office and had him add the tractor to the policy. It is fully covered against theft or damage, and it only raised my insurance about $30 dollars a year.

Soundguy · Jun 25, 2002

The salesman told me I could go through my homeowners insurance, and get them to send out an insurance certificate showing the tractor as additional insured. I contacted my h/o ins. and that wasn't a problem, if I wanted to wait a week or so! I didn't particularly want to wait, so I went for the immediate insurance.
I'm sure they have a profit margin hooked in there, but there is a convienience factor too, and they 'bank' on that, as was in my case. From what the salesman told me ( i know, i know.. not the greatest source... ) the insurance premium was based on the amount owed, withou regard to the term limit, I.E., I was essentially buying a bond for the amount financed, payable to the financier. I may be wrong, you never know about info from a salesman who is finishing up on a sale...

Soundguy

"I'd be curious to know what a rider on your homeowner's policy for the same $8500 would have added. I'm sure you wouldn't have had to pay that all up front for the three year term.

Remember, too, that if you're just covering the loan balance, it's declining every month. In your example after year one your balance is only around $6,100 and at the end of year two it's around $3,300."

Gary_in_Indiana · Jun 25, 2002

"the insurance premium was based on the amount owed, without regard to the term limit, I.E., I was essentially buying a bond for the amount financed, payable to the financier."

I think you've been given some bad information here. Actually, the term matters a great deal. Think about it this way. You have more opportunities to die or become ill or injured over the next five years than over the next two. Of course insuring against those risks with life and health insurance on yourself is going to be more expensive. It's the same with your tractor. It has more opportunities to be stolen or burned in a fire. Insuring against those risks will be more expensive over a longer term as well.

Also, rather than looking at it as a 'bond' you might want to try to think of it more like declining term insurance because every month as you reduce your balance. As in the illustration I gave in my last post on this thread, it's cheaper to insure against a $6,100 loss than an $8,500 loss.

Term is VERY important. I hope I've done an adequate job of explaining how and why.

Soundguy · Jun 25, 2002

I understand fully how an amortization works, with the declining principal, etc. However with a bond, within the maximum term of the bond, the actual time of loss does not matter. Take for instance a western union money order. You purchase the money order and send it to person 'x' via post. It is lost. You can have w/u replace the money order, but you must pay about a 5% fee plus a service charge to do so. The 5% fee is a contingincy bond. If the original money order is found and cashed fraudlently, the bond will pay off. The bond expires when the w/u money order is passed its negotiable period... usually 6 months. If the original money order is never used, w/u ( or the bonding company ) has profited on the 5% contingency fee.
Either way, you are paying to protect against future liability.

I'm not privy to NH actual lending practices, so I have no way to verify if what was told to me was how they actually work.

Soundguy

I think you've been given some bad information here. Actually, the term matters a great deal. Think about it this way. You have more opportunities to die or become ill or injured over the next five years than over the next two. Of course insuring against those risks with life and health insurance on yourself is going to be more expensive. It's the same with your tractor. It has more opportunities to be stolen or burned in a fire. Insuring against those risks will be more expensive over a longer term as well.

Also, rather than looking at it as a 'bond' you might want to try to think of it more like declining term insurance because every month as you reduce your balance. As in the illustration I gave in my last post on this thread, it's cheaper to insure against a $6,100 loss than an $8,500 loss.

Term is VERY important. I hope I've done an adequate job of explaining how and why.

Gary_in_Indiana · Jun 25, 2002

Soundguy, what you describe is a fixed liability (the amount of the Money Order) over a fixed term (the six month 'stale date' of the Money Order).

What I was discussing was the varying amount of principle remaining AND varying repayment terms affecting liability to the underwriter (and then, logically, the premium you have to pay).

These are two totally different animals. I'm sorry I couldn't explain it better. I have a hard time when I can't use my hands and wave my arms. /w3tcompact/icons/smile.gif

Soundguy · Jun 26, 2002

Again, I completely understand both situations, I was just passing the 'explanation' along as it wes told to me by the salesman.
Whatever vehicle the finance company used to insure against the liability doesn't overly concern me. Their offer was cheaper than my insurance companies i/m rider policy.

Reminds me of the new 'insurance based retirement accounts'
very clever idea.... borrowing against your own insurance policy, and getting some tax advantages to boot.

Soundguy

"Soundguy, what you describe is a fixed liability (the amount of the Money Order) over a fixed term (the six month 'stale date' of the Money Order).

"What I was discussing was the varying amount of principle remaining AND varying repayment terms affecting liability to the underwriter (and then, logically, the premium you have to pay).

These are two totally different animals. I'm sorry I couldn't explain it better. I have a hard time when I can't use my hands and wave my arms. "

spencer200 · Jun 27, 2002

I can tell you this the insurance thru the dealers works very well. We had a customer with a 7 day old round baler that caught fire and burnt up one morning that afternoon the adjuster was there declared it a total loss. The customer had a New baler the next day and we had a check from the insurance company in three imagine that I said 3 days thats good coverage.

Maker102 · Jun 29, 2002

I also assumed that the tractor was going to be covered under my homeowners insurance. I talked to my agent and he assured me that it was. I decided to go with part financing from Kubota and they sent a form to my insurance agent. The agent called and explained that my homeowners only covered fire and theft and that Kubota wanted "rollover protection" That would be another $185.00 a year, gee sorry bout that can we write you a policy? Heck no I will dip into the savings and pay it off. When you add all the little extras like this "extra insurance" filing fees. interest you are going to end up pay 11% for a bota 3.9 APR. If someone can recommend a solid 11% interest on my money I would jump on it in a heartbeat with the market in the shape that its in.