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How I Lost £4,000 And Was Happy About It

It’s Wednesday 13th April 2011. I still remember the day as if it was yesterday. I opened the front door to my ground floor 2 bedroom flat in Wimbledon. It’s around 9pm, and I’m shattered having just returned from a few days away on business. I step on to the raised area in the hallway and remove my jacket. But before taking the two steps down to the main ground level of the flat I notice an unusual smell of damp.


I quickly assume that my housemate has left some wet laundry in the hall, again, so think nothing more of it. I flick on the lights and to what I seem to remember as shock, although it could've been bemusement, I find that my entire flat is submerged in around 5 inches of water.


Sh*********t.....


No exaggeration either, it’s everywhere.


Everything within 5 inches of the floor is completely sodden. All furniture, personal belongings, kitchen cupboards. All soaked and all ruined.


‍‍‍So if this happens to you, what do you do next?


‍‍Insurance.


Now if you’re anything like me, you’ll agree that Property Insurance isn’t the most exciting topic in the World. I mean we don’t see many of the gurus out there flicking up their facebook ads in front of their sexy insurance certificates do we?


But it’s a darn important topic, so just because something isn’t exciting, doesn’t mean that it should be overlooked.


Very long story short (because we've just agreed insurance isn't the sexiest of topics)...


I know that I am covered. So I set to work figuring this whole process out. I have buildings cover under the buildings insurance policy for the entire block - having a share of freehold and directorship of the freehold company - I know that the building is always insured.


I also had a separate policy to cover my contents however I was a cheap skate back then so only took cover up to £15,000. This turned out to be the expensive mistake.


I hadn’t quite understood at the time what Contents Cover really covered you for.


By the time I itemised every single item that was lost, factored in 6 months of alternative accommodation whilst my flat was completely restored (as this comes out of the contents part of your insurance) and also factored in the cost of brand new carpets - yes these too are classified as "contents" - it turned out that I was underinsured.


Again, sh********t.


My total claim value was £17,000 which meant I was underinsured to the tune of £2,000.


So how did I lose £4,000?


When it came to receiving the payout from the insurance company, because I was underinsured by £2,000 they withheld £2,000 from my claim.


So only paid out a grand total of £13,000.


Four grand less than it cost me to replace everything!


And so this was the £4,000 lesson I wasn't aware of at the time, and one that you may not be aware of today.


‍I was speaking with my Insurance Broker, Wes Haynes from Glowsure, about this and he was saying that underinsurance is a pretty serious problem. One that he sees daily and prompted me to write this blog.


‍What is Underinsurance?‍


A simple illustration of this is - you’ve insured your building and contents for £150,000, there is a fire (or flood in my case). You discover you have a claim for £50,000, because you were underinsured by 50% the insurer will only pay you 50% of the claim amount.


Even though you're not claiming the full amount covered.


If you read the Terms and Conditions in your insurance policy - and why would you because you have more important things to do - you would find a condition that insurers call the ‘average’ rule.


If your property is under insured, most insurers will apply this rule when they calculate claims. This means whatever amount you are under insured for, they can and will reduce the amount you are due to be paid by the same percentage!


Fortunately for me back in 2011 when I learnt all about this first hand, it was “only” to the tune of a £4,000 shortfall which is why I am so happy about it!


It could have been a lot worse.


Today I conducting annual reviews of my portfolio in terms of rebuild costs and contents valuations.


I have also learnt that it really and truly pays dividends to have a great insurance broker on your team rather than try and do it all by yourself, because your broker will pick up most of the legwork for you in terms of administering the portfolio.


‍Which brings me to my next point.


Cheap isn't always best


‍When I started in property, I thought it was all about trying to get the cheapest insurance quote I could find. You see all the comparison sites these days promoting you to shop around, but what I learnt is that going with the cheapest quote isn’t always your best bet.


A comparison site for example doesn’t read the small print of all the policies, nor does it take the time to understand your exact situation and requirements to ensure you are properly protected. Or in many instances, over insured.


A good broker however will do this.


Yes you may end up paying a little bit more in premiums but not always the case.


A good broker will also process all of your claims on your behalf, they will manage all your renewals and shop around for you to get the best deal. So you're actually investing in the support and buying back your time which should never be overlooked.


If you want to be serious about scaling your property business, you don't want to be bogged down with administration when there are more competent and more knowledgeable people out there to do it for you.


That why I keep repeating myself that property is about two things


  1. People - and having the right people around you

  2. Numbers - so you are making good returns


Maybe it's worth spending 30mins this week to have a look at your current insurance cover, and making sure the rebuild values correct. Is what you currently have appropriate?


Or go one better than that and send your current policy or policies over to your broker and ask them to review it on your behalf. That is at the end of the day, one of the things they offer.


Until next time.


- T


P.s. If you’d like to be connected to one of the best insurance brokers around, come and join us in the Property Entrepreneurs Club where my broker hangs out with us. I've also lined up some exclusive rates and free desktop rebuild cost assessments just for Club members.

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