I ran into a comment on the forums today. The person wondered how to invest in real estate when he couldn’t find any insurer who would cover a nuclear bomb destroying the property. It’s unfortunate that there is even worry about this but I suppose it is a possibility. Is it any more of a possibility than it was in the ’50s, though?
This guy went on to say that he was almost certain there would be nuclear war in the next 3-5 years and he didn’t want to buy if it wasn’t covered. Insurance coverage is something that investors think about a lot. Insurers do a lot of statistics and math work to determine the probability that a loss will happen to your property, and if it does, the cost of replacement or repair. At its most basic, multiply the likelihood of the loss by the cost of the replacement, and you have the coverage amount. And you can get hazard insurance to cover a lot of things, but when it comes to events that haven’t happened before, their math breaks down. If your house gets nuked, it’ll be gone and in its place will be a city-sized crater. There won’t even be markers to know where your house stood. There will be no rebuilding any time soon, even if they would pay for it.
It’s an Extremely Small Possibility
You might also say that the possibility of a nuclear strike is vanishingly small. True, it’s small, but not outside the realm of possibility. It’s the sinkhole concern all over again. At any point a sinkhole could open up under the property you just bought. Though it was no fault of your own, it’s likely not insured, and will be a total loss. And there won’t be the possibility of rebuilding for a long time. But, the likelihood of a sinkhole under your investment is so small, the math makes it a rounding error to even consider it. You might say it is worth it to you to pay the pennies the math would demand, but to the insurance company, their risk is much greater.
Uncle Sam Wouldn’t Allow It
Consider if the insurer decides to cover a nuclear strike. Due to the math above, they would collect a very small amount in premiums. In the unlikely event of a bomb, many of its covered units in the area would be affected, causing them to have a huge financial loss. This would probably be something that would cause them to go bankrupt. So, unless they can show the federal government they are able to pay the repair cost after a nuclear blast, the government wouldn’t even allow them to offer insurance.
Shouldn’t You Be Worrying About Something Else?
Perhaps most importantly, if you really believe nuclear war will break out in 3 years, you have no business investing in real estate. If that happens, the basic economy will drop out, no banks will be collecting mortgage payments, and you’ll be struggling just to get food and water. The notion of owning a building to rent it out will cease to exist, at least for a while. The records of your ownership may be gone. Your best bet would be to build a bomb shelter and spend the money on those food packs that last for 25 years.
For the rest of us, don’t ignore the possibility, but do realize that there are some things we cannot prevent, and maybe not even plan for, so live your life and keep on investing.
