If your property is ever flooded or you’re burgled, home insurance could prove one of the best purchases you ever made.
So how do you make sure you’re getting the protection you need? Here’s a look at the nuts and bolts of home insurance.
Protecting your building and belongings
There are two types of home insurance: ‘buildings’ and ‘contents’. You can buy them separately from different companies or wrap them together in a single ‘combined’ policy (which might earn you a discount).
Buildings insurance provides cover for the bricks and mortar (or whatever your home is made of) plus any permanent fixtures, such as fitted kitchen units and bathroom suites.
Contents insurance covers your belongings – that’s everything from your clothes to your carpets, your jewellery to your TV, and your furniture to the contents of your freezer.
Not everyone needs buildings cover!
If you’re renting, you don’t need to buy buildings insurance – the landlord should take care of it as the property owner. The cost will come out of your rent.
The same often applies if you are a homeowner, but of leasehold property – the freeholder usually insures the building, the fixtures and any common areas.
This isn’t the case with every leasehold property, so check to see how things stand with you.
If the freeholder arranges the buildings insurance, the cost will flow through to your service charge.
Buildings insurance and your mortgage
If you’ve got a mortgage, your lender will insist you have buildings insurance as a condition of giving you the loan – it doesn’t want to be left financially high and dry if your property is destroyed.
Your building society or bank may try to flog you insurance, but you’re under no obligation to buy from them, so it’s worth shopping around to see if you can get a better deal elsewhere.
You need to get buildings insurance when you exchange contracts
You become responsible for a property when you exchange contracts, so it is crucial you have buildings insurance from this point on.
It bears repeating: get buildings insurance when you exchange, not when you complete!
How much buildings insurance do you need?
You insure your property for the amount it would cost to rebuild if it were totally destroyed by fire, an explosion or in a storm. This is the ‘sum insured’.
Note that the sum insured is not the same as the market value. In some locations, a property can be worth less than it would cost to rebuild. In others, it might have a market value that’s much higher than its rebuilding cost.
You can get an idea of the cost of rebuilding your home by visiting the Royal Institution of Chartered Surveyors’ Building Cost Information Service.
It’s important to get the right figure: too high, and you’ll pay more than you need for your cover, too low and you risk getting an insufficient pay-out if you make a claim.
What about subsidence?
One of the main headaches for property owners in some parts of the country is subsidence. This is when soil movements disturb the building’s foundations, usually following prolonged drought, leading to cracks in the walls and other structural damage.
Buildings insurance will pay for repairs, but if you live in a subsidence-prone area, your policy will be more expensive.
You’ll also face having to cough up a steep excess – that’s the amount you have to pay towards the cost of any claim you make. A normal excess would be £250, but the excess for a subsidence claim could be £1,000 or more.
How do I work out how much contents cover I need?
Putting a value on all your possessions can be a challenge. One way to do it is to go room by room, totting up how much it would cost to replace everything in the event of fire, burglary or some other destructive incident.
You might be surprised by how high the number gets, but remember you’ve probably accumulated your belongings bit by bit over a lengthy period, so don’t be too conservative.
Some policies give you a contents sum insured based on the number of bedrooms you have – but you still need to check you’ve got sufficient cover.
Another option is a policy that offers unlimited contents cover. This is the peace of mind solution, but the premium is likely to be higher than you’d pay elsewhere.
Valuable items
Contents policies require you to make a separate list of any items worth more than a certain amount.
This could be, say, £1,500 or £2,000 depending on the insurer. You might see it described as the ‘single item limit’.
So if you’ve got expensive jewellery, a top-of-the-range home entertainment system or anything else that’s worth more than the stated policy limit, you’ll need to put down how much it would cost to replace. If you don’t, you’ll only be able to claim the single item limit amount.
If you have antiques, collections, fine art or other costly possessions, you might need to provide your insurer with an independent valuation. And it’s always worth keeping receipts and taking photos so you’ve got evidence to support your claim if something is stolen, damaged or destroyed.
If you own something that’s mega-valuable, you might need to insure it on a different policy, and the insurer might ask you to keep it in a safe or even a bank vault.
Additional cover
There are various add-ons you can buy alongside your home insurance:
Legal expenses Meets your legal costs if you are involved in a court action
Home emergency Provides access to tradespeople such as plumbers and electricians
Accidental damage Pays for damage such as a pet knocking over an ornament or paint spilling on a carpet
Personal possessions Insures phones and other gadgets when you take them outside the home. This might be referred to as ‘all risks’ cover.
Buying your policy
You can buy home insurance on a comparison site such as uSwitch, through a broker, or direct from an insurance company.
You’ll need to provide information about your property, including the types of locks on your doors and windows. It’s important to be accurate with this sort of detail, as the insurer might check if you make a claim for burglary – and any discrepancies might lead to a reduced pay-out.
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