Quick and dirty expense analysis SDB + Insurance

Discussion in 'Bullion Investing' started by Blaubart, Dec 15, 2014.

  1. Blaubart

    Blaubart Melt Value = 4.50

    I've heard people ask why get insurance on an SDB?

    Two words: Hurricane Katrina

    Or, perhaps more relevant to my area: Yellowstone Caldera

    There is some good info in other threads on the ANA and their recommended insurer Hugh Wood. Their rates seem to run about 1% of the value of your collection for their base plan, not including the annual ANA membership ($26-$46). A little steep for me since if the Caldera goes up, I probably won't be around to look for my bullion.

    But let's take a look at the numbers and you'll see why I won't be buying insurance for my bullion. Let's say one has $10,000 in bullion stored in a safe deposit box that runs $30 a year and insurance costs 1% of the value of that bullion. It sounds reasonable until you carry it out for a while, keeping track of expenses and factoring in 3% inflation. i.e. The value of your bullion rises by 3% per year, and so do the annual insurance and SDB expenses.

    At 20 years:
    Value of bullion: $17,535
    Total paid on SDB rental: $806
    Total paid on insurance: $2,687
    Grand total paid on protection: $3,493
    As a percentage of value: 20%

    At 40 years:
    Value of bullion: $31,670
    Total paid on SDB rental: $2,262
    Total paid on insurance: $7,540
    Grand total paid on protection: $9.802
    As a percentage of value: 31%

    At 60 years:
    Value of bullion: $57,200
    Total paid on SDB rental: $4,892
    Total paid on insurance: $16,305
    Grand total paid on protection: $21,197
    As a percentage of value: 37%

    That already sounds scary enough, but it's even worse if you also factor inflation into the spent expenses as well, which isn't factored into the examples above. i.e. The insurance and box rental for the first year are $130 in today's dollars, and 60 years from now, those $130 are still displayed in today's dollars, whereas the value of the bullion rose by 3% every year. All I did in this example was add 3% to the annual expenses to find the actual money spent.

    In this example, the grand total paid on protection will never exceed the value of the bullion, because even though you continue to pay for the SDB and the insurance, the value of the bullion is increasing with inflation while the amount paid for protection in the past is not. The percentage rises quickly in the beginning, but eventually reaches a plateau.

    I hope that makes sense. It doesn't make much sense to me to do it like that, but that's how I've seen other people do such analyses in the past. It makes more sense to me if we're adjusting for inflation on some parts of the analysis, then we should adjust for inflation in all parts.

    If we do adjust the value of the monies invested to factor in inflation to those as well, to find the effective money spent, the value of the bullion of course remains unchanged, but the totals paid for protection and percentages of value increase to:

    20 years:
    Value of bullion: $17,535
    Effective amount paid on protection: $4,559
    As a percentage of value: 26%

    40 years:
    Value of bullion: $31,670
    Effective amount paid on protection: $16,484
    As a percentage of value: 52%

    60 years:
    Value of bullion: $57,200
    Effective amount paid on protection: $44,616
    As a percentage of value: 78%

    In this example, the effective amount paid will ultimately surpass the value of the bullion since both the value of the bullion and the total expenses are both being adjusted for inflation. (At the rates used, this will happen at year 77) This is much more realistic, but don't expect to see insurance companies using this sort of logic any time soon.

    If you divert that $100 per year from insurance to investment for a 5% return (historic average for small business stocks is almost 11%), you'd have $4,447 after 20 years, $19,834 after 40 years, and $67,134 after 60 years, and odds are very good that you'd still have your bullion too.

    Are things 100% certain to work out this way in both the expense analysis and the investment scenario? Of course not, because inflation rates and investment returns will vary. But the point is, if you want 100% certainty in life, you're going to pay for it. Often to the point that some things, like bullion stacking, no longer make any sense at all.

    The ONLY reasons I have a SDB is because I can get one at a steeply discounted rate, I secure other things in it besides just bullion, my bank is within walking distance of my work, and I enjoy having one. If I had to pay the full rate, I probably wouldn't have one. I would probably have a TL30 safe poured into concrete instead.

    I refuse to buy insurance for my SDB. YMMV of course, and insurance might make more sense for dealers than stackers, or people in high crime areas, but in most cases, insurance makes the most sense for insurance companies.


    If anyone is interested in seeing the spreadsheet I used to come up with these values, I think I can send it in a PM. It's ugly right now, but I can add column headers and notes to clarify things if need be, but it's really quite simple and you could probably do it on your own. All it does is start with $10,000 for the value of the bullion and increase that by 3% per year. In the first example, it starts with $30 for the cost of the SDB and increases just the cost by 3% per year and combines all payments made. The insurance stays at 1% of the value of the bullion for the entire timeline, and combines all payments made. Then the totals for SDB and insurance are combined and divided by the value of the bullion to calculate the percentage of cost. In the second example, everything is the same except each year the running total of expenses is also increased by 3% to account for inflation on the expense side of things.
    tommyc03 likes this.
  2. Avatar

    Guest User Guest

    to hide this ad.
  3. medoraman

    medoraman Supporter! Supporter

    I believe insurance on bullion in a SDB is less than 1%, but point taken.

    Another way to look at it, though, is not cumulative. Is it worth your peace of mind in one specific year to know if something is stolen it will be replaced? Its like any insurance, the NPV<premium since the insurer has administrative costs and profit. So any insurance long term is a bad "investment".
    Blaubart likes this.
  4. geekpryde

    geekpryde Husband and Father Moderator

    I like the math. But ~$100 per year to insure my collection at home, at the bank, and while being mailed via RM, certainly seems like a deal to me. I will continue to pay HWI.
    Blaubart likes this.
  5. deacon2828

    deacon2828 Active Member

    Money cannot replace my coins.
    Blaubart likes this.
  6. Kirkuleez

    Kirkuleez 80 proof

    I didn't have a SDB for Katrina and I don't now. My coins were stored in a safe in a closet on the bottom floor because I was worried about the weight of the safe on the second floor of a 200 year old house. My house ended up taking 12 feet of water and submerged my coins for nearly a month. Luckily I had some friends at NCS who took care of all of my rarer coins and albums FOR FREE! They didn't slab them again, but they put them either in air-tites or Dansco albums. I'll never forget their kindness when I thought all was lost. Today, I store my coins in the same safe on the top floor of a storage facility that is climate controlled and keep a small group of trading coins at the house in a small watertight safe.
  7. tommyc03

    tommyc03 Senior Member

    Heard some of the roads melted there this year, not to mention the Russians have a nuke aimed at the Caldera. To be honest most of us won't be around if she blows.
    Blaubart likes this.
  8. deacon2828

    deacon2828 Active Member

    Yep !
  9. cpm9ball

    cpm9ball CANNOT RE-MEMBER

    Blaubart has the right idea, but he should take it one step further. Cancel his auto, home, health and life insurance, too! What good is it?

    Blaubart likes this.
  10. Treashunt

    Treashunt The Other Frank

    At 20 years:
    Value of bullion: $17,535

    At 40 years:
    Value of bullion: $31,670

    At 60 years:
    Value of bullion: $57,200

    you hope!
    Blaubart likes this.
  11. Blaubart

    Blaubart Melt Value = 4.50

    Home, health, life, and comprehensive and liability auto insurance are different animals.

    Home and comprehensive are different because they are mandatory if you still owe money on them.

    Liability insurance is different because most people don't have enough money to reimburse someone else if they damage their property.

    I am not completely set against all forms of insurance, especially for things that you cannot afford to lose or be without, like your home. If I lose my bullion, then I have lost an investment that I enjoy having, but I wouldn't be homeless.
  12. Blaubart

    Blaubart Melt Value = 4.50

    Not in today's dollars, but in inflation adjusted dollars assuming 3% annual inflation, at which time a gallon of milk, assuming we're still drinking milk in 60 years, would cost $21.
  13. Blaubart

    Blaubart Melt Value = 4.50

    For some things, yes. But I would not want to stack bullion if I knew that I would spend more than it is worth to protect it for a lifetime, which is how long I plan on keeping it.
Draft saved Draft deleted

Share This Page