Barefoot Investor: How to save your assets in a house fire

WHEN Barefoot Investor lost his home to fire, he made sure everyone he knew had insurance. Scott Pape explains how you can reap the most from your insurer, if fire ravages your home.

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STOP FOR a second ... I want you to do me a favour.

I want you to picture your spare room at home. (You know, the one you haven’t cleaned in a while … the room you’ve chosen to ‘display’ all your mother-in-law’s artworks in.)

As you sit here reading this, there’s an electrical connection in that room that’s shorting, and it’s just sparked a fire.

(Don’t worry, you’ll get out of this, and the dog. But your mother-in-law’s artworks — gonski!)

Seriously, I want you to stop for a moment and imagine that your house — and everything in it — is now gone.

That’s how much time I had when my house burned down.

Be smart like these guys, get home and contents insurance before lighting so many candles.

Look, no-one plans to lose their home to fire … it just happens, and in a heartbeat.

And that’s why, each year since I lost my home, I’ve made a point of encouraging people to review their home and contents insurance.

Better yet, this year the State Government approached me to promote a public campaign called ‘Insure It, It’s Worth It’.

Disclosure: they’re slinging me a few bucks for this campaign (yay!). Though to qualify for the gig I had to have my house burn down, with everything in it (oh!).

Shockingly, the Victorian Government has found that one in two low-income Victorians living in disaster-prone areas do not have enough insurance … or have no insurance at all!

Okay, so with that in mind, let’s try a different scene:

Picture me walking through your house with a cigarette lighter, randomly setting alight to your stuff.

You stare at me, horrified.

And then I cockily strut right up to you — until I’m right in your grill — and mockingly whisper:

‘Oh? You need to replace this fancy underwear of yours, do you? WELL, WHY DIDN’T YOU INSURE IT THEN?!’

Home insurance shouldn’t be a scary term, so make sure you are insured today.

(Right now a bean-counter from the State Government is having chest pains about signing me for this campaign.)

Anyway, the bottom line is this: if you wear underwear, you need insurance.

So what I want you to do — right now — is take out your phone and ask Siri to remind you to call your insurance company next Wednesday (hump day) and make sure you have your backside covered.

In the past I’ve advocated that people take out what’s called ‘total replacement’ insurance. However, the truth is that fewer insurers are offering it these days. So you’re most likely to have what’s called a ‘sum insured’ policy — and it’s up to you to make sure that sum is adequate.

Most insurers have an online calculator to help you work it out. But the key move here is to ring up your insurance company and ask them how much you’re covered for, and what events you can claim for (fire? flood? a weirdo breaking into your home?). As a bonus, your conversation will be recorded, which you can call on if you ever have to make a claim.

Now I’m going to put the mozz on you.

Take out your phone and do it! If you don’t, you’ll kick yourself if your house burns down next week, right?

Tread Your Own Path!

If you lose your home to fire, make sure you read through your insurance policy to see what you’re covered for.

WHY HOME INSURANCE ISN’T A WASTE OF TIME

WE LOST OUR HOME

BEC AND STEVE ASK:

We lost our family home to a house fire six weeks ago. And, like you, I told our insurance company that I wanted all the cash owing in my account immediately. The problem is that the insurance company is doing everything to discourage us from getting the money and will not give me an answer. We want to rebuild with our local builder, who built it for us seven years ago, as he offers excellent value and quality. But the insurance company’s building team is pressuring us too, saying they can rebuild the house dirt cheap. What are your thoughts?

BAREFOOT REPLIES:

My heart goes out to you.

You’ve just gone through a significant, stressful life event — so don’t let some pencil-neck push you around.

Here are three things I’d suggest:

First, read through your insurance policy and see what you’re actually insured for. And if reading insurance legalese is not your strong suit, consider lawyering up. You need someone in your corner.

Second, be prepared to play hardball. There shouldn’t be that much of a difference between your local builder and your insurer’s builder, if they’re rebuilding to the original specs. Get your insurer to explain, in writing, why they want to go with their own builder.

Third, don’t be rushed into making a decision — don’t ‘cash settle’ until you have all the facts.

Working out what stake you have in a family farm may end in angst, anger and family breakdown.

A LONG WAIT FOR THE FAMILY FARM

HANNAH ASKS:

My partner and I live with his parents on the family farm, which they have promised to him in the future. The good news is we have free rent and no debt (and we have a baby on the way!). The bad news is they are not paying him to work the farm. He does some off-farm contracting work, but that only earns him about $10,000 a year. In short, I am frustrated with our financial situation. I have started putting your steps in place, but what can we do to ensure our financial future while I am on maternity leave (when my current $70,000 salary will disappear) … and beyond?

BAREFOOT REPLIES:

I feel for you, I really do. You’re about to go on a journey that — best case — will take years and has a high likelihood of ending in angst, anger and family breakdown.

No, I’m not being dramatic. Think about what most farming families confront:

The parents may have almost their entire net worth tied up in the farm — and they usually live on the farm.

The majority of the kids may not be interested in taking over the family farm, but they may still want (or demand) an equitable share of their inheritance.

The farm itself may be barely profitable, saddled with debt, or in need of significant investment to scale it up.

And to cap it off, farmers tend to find it easier to just jump in the tractor, head out to the back paddock, and avoid talking about succession planning altogether.

Easy, huh?

Keep the peace at Christmas — direct your energy into finding a professional who is experienced in farm succession to deal with the nitty gritty.

My strong advice to you is to get buy-in from the entire family to appoint an independent adviser who can help the family through the succession planning process, ultimately concluding with a formal written agreement.

Questions you’ll need to face include:

How will your husband, who’s racked up years in unpaid wages, be back-paid?

Now your husband has a family to provide for, how will he be paid a fair wage from now on?

How does the family transfer the asset tax effectively while protecting the long-term interests of the family?

How will your in-laws fund their retirement?

All meaty questions that will realistically take you a number of years to work through.

The only definitive advice I have for you is this: direct your energy into finding a professional who is experienced in farm succession — and let them take the heat. The most important asset to protect is the relationship you have with your family. Or to put it another way, Christmas Day is the most important day of the year!

Tom wants to know whether Barefoot would consider buying his town’s pub. Picture: Supplied

A PUB WITH NO BEER?

TOM ASKS:

I am wondering whether you have a black armband on after the backdrop for your first ‘date night’, the famous Romsey Pub, closed its doors last week. Could I be so bold as to suggest this would be a good investment for the Barefoot Investor? Every country town needs a pub, and you’re probably not short of a quid. Could be a goer?

BAREFOOT REPLIES:

It’s certainly sad for the town.

As for me buying the pub?

Well, I wouldn’t be a red-blooded, beer-drinking Aussie bloke if I hadn’t at least thought about buying it …

… but I wouldn’t be married if I did.

Yep, I took the (pie in the sky) proposal to our last Barefoot Date Night, and my wife shut it down even before the entree arrived.

Probably for the best.

Still, watering hole or not, Romsey is a thriving country town. I’m proud that our community fought against the publican putting in pokies — even if it means the pub closes down for a while.

MORE BAREFOOT INVESTOR

The Barefoot Investor holds an Australian Financial Services Licence (302081).

This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Barefoot Investor: How to save your assets in a house fire