| Home and contents insurance |
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Buildings InsuranceBuildings insurance protects the structure of your home and all permanent fixtures and fittings within it against events such as fire, flood and subsidence. Buildings insurance is a condition of a mortgage lender, as the structure of your home represents the security of its loan. If you buy a flat, buildings insurance for the whole block should be covered by the freeholder.
How does it work?With buildings insurance, your ‘sum assured’ will be how much it costs to rebuild your home from scratch. This is different from what your home is currently worth, as the most expensive part of its market value is the land it stands on. It also means that, even if your home has doubled in value due to house price rises, the sum assured remains the same.
You can opt to pay your buildings insurance premium either on a monthly or an annual basis. Often it is better to pay each year, as it can be cheaper and you are safe in the knowledge that you are always covered. Premiums may rise each year but – providing no claims have been made – usually only at the rate of inflation.
ExclusionsSome of the common exclusions with buildings insurance are the damage of outside structures, such as greenhouses or sheds, caused by storms. Also any damage caused by noise – from aircraft, for example. With claims for subsidence, some insurers may not pay for garden features that are not built on solid structures, such as garden walls, rockeries and paths. Insurers may also insist that the home has been inhabited for a certain number of days leading up to the claim – 30 days is typical. Wear and tear to the structure and fittings of your home is also excluded, and your claim is unlikely to be paid if information has been omitted from the application. This is especially relevant when it comes to subsidence claims.
Most insurers will charge an excess on claims, but typically no more than £100. Excesses for subsidence claims are more like £1,000, and can be more – even double – if you live in a high-risk postcode area.
Keeping up-to-dateRenewing your buildings insurance each year is imperative. If your home burnt to the ground and you had no insurance you would be left homeless and still liable for the mortgage repayments – an unthinkable situation. You should also ensure that you keep the cost of the rebuild up-to-date. If you have just had a new central heating system fitted, for example, tell your insurer.
ProsThere are only pros to buildings insurance – you have to have it – but each policy will differ in price and its level of comprehensiveness. Before signing up with a policy, it is crucial you understand its terms, conditions and exclusions. Some policies, for example, may exclude all damage caused by weather.
Contents InsuranceContents insurance is often sold as a "bundled" or joint policy with buildings insurance, as the two can work in tandem with any home-related claim. Confusingly, contents and buildings insurance can also be collectively known as Home Insurance.
If you could pick up your home, turn in upside-down and shake it, everything that falls to the ground will be covered by contents insurance. Under a contents policy, you can claim for damage or theft of the contents of your home. This means you will need contents insurance whether you are a homeowner or a tenant in someone else’s home.
How does it work?Your ‘sum assured’ will be what it costs to replace all your belongings – and the total sum of this is probably higher than you think. As it us up to you to present a figure to the insurer, it’s a good ideas to tally up items in each room, calculating not just how much it is worth now, but how much it would cost to replace. Sometimes insurers will estimate this cost for you, using the number of bedrooms you have as a benchmark. This is called a ‘bedroom rated’ calculation. Again, when you receive the estimate check this is a realistic sum to replace everything in the event of a claim. According to industry statistics, most people do not have enough cover for the contents of their home.
How are my premiums calculated?The premium you pay for your contents insurance will be based mainly on this final sum assured. However, other considerations will also be factored into the cost, such as the type of policy you opt for. ‘New-for-old’ policies, which replace items if they are stolen or destroyed at today’s market prices, will be more expensive than ‘wear-and tear’ policies that replace or repair items while factoring in the cost of depreciation. As the insurance will pay out on theft, the postcode area you live in will also affect your premium. Even if you have never experienced a burglary, the insurer will have its own postcode statistics, and if they put you in a high-risk area you will pay for it in your premium regardless.
The price of a contents policy is also determined by the level of cover offered. Many policies will pay out for accidental damage, such as glass furniture breakages, but it is less likely that they will pay for smaller hiccups, such as red wine spills on carpets. For this you may need an add-on cover called ‘accidental damage’. If you choose to opt for this, it will load another 10 or 20% on to your premium.
However, it can sometimes be a false economy to claim on small mishaps, as the insurer is likely to increase the cost of your premiums when it comes to renewing your policy. Insurers are often also within their rights to simply clean a carpet or sofa rather than replace it. In such a case it could be cheaper to do it yourself, leaving your contents policy well alone.
Keeping fully coveredIt is important that you keep any long-term increased value of your contents up-to-date with your insurer - if you have just bought a new state-of-the-art sound system, for example. But the value of your home’s contents also increases in the short-term. At Christmas some insurers automatically increase cover for the month of December to account for the extra cost of gifts stored in the home. This could be by a fixed amount, say £3,000, or by a percentage of the original sum assured, say 10%. With other insurers, however, you will need to make a phone call and increase the sum assured yourself. You may well find this is free, so you have nothing to lose by investigating.
ExclusionsThe level of cover that is provided for contents outside the home, such as garden tables, chair, even bicycles, will vary between policies. Insurers also take different views on contents being carried away from home – in your car or handbag, for example. Sometimes insurers will also refuse to pay if damage was caused by a specific party, such as a pet or even a guest!
Like buildings insurance, contents premiums can be paid either monthly or annually, but it can be cheaper to pay each year, which also provides the bonus of greater peace of mind. You can keep premiums down by increasing the security of your home – fitting five-lever mortice locks on doors and installing an alarm, for example. Contents policies have many different variables, so it is important to read the terms and conditions carefully.
CashQuestions Guide to Home Insurance
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