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I find it quite funny, the number of people that don’t buy insurance from me but still value my opinion, especially when something goes wrong.

You can almost guarantee in our house that the phone will ring either when I’m about to eat my dinner or something comes on television that I want to watch. If it’s a salesperson, I can now get them off the phone with a matter of seconds, but when it’s a friend in need of advice then that’s a different matter, out of politeness, I’ll usually try to help. Last night another dinner ended up in the microwave on re-heat as a friend called up to ask some questions on behalf of a work mate. I find it quite funny, the number of people that don’t buy insurance from me but still value my opinion, especially when something goes wrong.

Anyway, this chaps mate had recently submitted a claim for a burst pipe that had caused, apparently over £10,000 worth of damage to the downstairs of his property. The situation was made worse as the family had been away to a wedding over the weekend and on return discovered the damage. I remember that weekend well as we had a burst pipe in our own garden as temperatures plummeted to minus 12 in our area.

This person was quite worried because he had just received a letter from the loss adjuster stating that his sums insured weren’t adequate and that the matter was being referred back to the building insurance company for instructions. He wanted someone to explain to him what the consequences were likely to be.

I agreed to call him to see if I could put his mind at rest, alas I wish I hadn’t. After a bit of small talk, he explained his problem, so I asked him to go and obtain his latest insurance policy, this took 5 minutes as he couldn’t find the current one only last years but as the company hadn’t changed and I was hungry I asked him to read me some information from the one he had. Standard Perils, Accidental Damage, £100 excess, all fairly usual stuff. Sum insured £81000 (I can’t remember the exact amount) for a four bedroom end of terrace house. Seeing the problem immediately, I asked him how he calculated the sum insured.

Well according to him, when he paid off his mortgage 10 years ago he decided to leave the building society insurance scheme and buy his own insurance elsewhere (I know who the company are) He decided when taking out his own insurance to only cover rebuilding costs for £50,000 partly on the advice of a friend and partly as he could not see himself ever having to claim for more than that amount. I had the unpleasant (unpaid) task of explaining to him that wasn’t the way to do it and that his insurers may apply an average clause to his claim, where by the amount of the claim is reduced in direct proportion to the amount of under insurance. His correct sum insured according to the lost adjuster was £175,000 thus his £10,000 + claim could be reduced to below £3000.

Poor chap, he kept saying “But the claim is less than the amount I’m insured for, they should pay all my claim” After a few attempts he reluctantly accepted the fact that he should have insured for the full rebuilding cost of the property and the reasons why home insurance is calculated on this basis. I think he probably knew he was doing the wrong thing, but so many people ignore common sense when they see a way to save a few pounds.

This chap received bad advice, (not from a broker or an intermediary I might add) His policy was taken out ten years ago, it was simply index linked and he duly paid the renewal each year. Nowadays, I’d like to think it would be a lot harder for an insurer to accept a low sum insured on a building without questioning the policyholder as to its suitability. Computers are far more sophisticated, some insurers have notional rebuilding calculators to help them establish sums insured or have high threshold or limitless sums insured.

This chap may have saved some money on the premium over the last 10 years but unless his insurance company is in an extremely benevolent mood, I think he is going to be funding a large proportion of his claim himself. And the moral of this story is, always seek professional advice when buying your insurance, especially if you’re not entirely sure if what you are doing is correct. Don’t cut corners; it’s simply not worth it. Oh, one other thing, don’t go away in winter during a very cold period and switch your heating off.

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