Being under-insured can leave you seriously out of pocket should the worst happen. But paying for more cover than you need is simply a waste of money.
Getting the right amount of the right sort of insurance can seem like a delicate balance, so here’s a look at how to get appropriate cover, no matter what your circumstances.
Two types of cover
There are two types of home insurance cover. Contents insurance covers everything inside your house, while buildings insurance covers repairs to the building itself, or even a complete rebuild of the property if it comes to it.
Having both types of insurance should cover you for every eventuality, from burglary to damage from the elements or a catastrophic fire.
What exactly does contents insurance cover?
Contents insurance covers you against theft or damage to things like your television, computers, clothes, white goods, DVDs and so forth, so basically the things which aren’t permanent fixtures.
Not every policy will cover things like your carpets or sofas – some insurers will ask you to take additional cover for soft furnishings, so it is important to check the policy.
You take out contents insurance based on the approximate cost of replacing everything at its current market value. Don’t worry about how things might have depreciated in value over the years, as most insurers operate a ‘new for old’ policy, replacing your old stolen or damaged TV with a new version or an equivalent if this is not possible.
If you’re taking out a new contents insurance policy and you’re adding up the approximate value of all your possessions, remember to price everything at its current market value. So, if you bought a 42” flat screen two years ago, bear in mind that it would be a lot cheaper to buy one today, and that’s the value you should attribute to it. This will ensure you don’t pay for more cover than you need.
You might need to provide details of any particularly expensive items in your home such as jewellery or artwork if they are valued at, say, £500 or more. Having valuable items in your home will likely be reflected in higher premiums. And if you’ve got something really expensive, it might be more than the limits of a normal policy, in which case you’d need special insurance for that particular item. Each policy will set out its various limits.
If thieves were to make off with your credit cards or any cash in the house, you may not be covered. You should check the terms of your contents cover because some policies will cover stolen credit cards up to a certain limit, but won’t necessarily cover stolen cash.
A good starting point for working out how much contents cover you need is to make a list of all the rooms in your home and then create an inventory for each room, noting the approximate cost of each item at its current market value.
Alternatively, try our contents calculator to help you estimate the value of your possessions.
What exactly does buildings insurance cover?
Buildings insurance covers the cost of repairing or rebuilding your property if it is damaged by the elements or fire. It also covers things like fitted bathrooms or kitchen units.
Some insurers will issue a ‘one size fits all’ sum to pay out in this instance whereas others will ask you to put an approximate sum which would cover the costs of a rebuild.
You might assume that the rebuild value for your buildings cover would be the same as the current market value of the property. But if you live in an area where house prices are particularly high, the rebuild cost could be much lower, so the assumption could prove costly in terms of higher premiums.
If you live in an area where house prices are low, the cost of rebuilding might be higher than the property’s market value. In this case, taking out buildings insurance against the market value could leave you having to make up the shortfall in the event of a claim.
The Building Cost Information Service from the Royal Institute of Chartered Surveyors can help you to get an accurate rebuild quote, so you can make your buildings cover as accurate as possible, ensuring you don’t overpay on premiums or under-insure your property.
Some insurers will offer you a discount for buying both your buildings and contents insurance from them. You can also help lower the cost of your cover by installing insurer-approved security equipment like burglar and smoke alarms.
What if I rent or live in a block of flats?
If you live in a rented property it’s likely the buildings cover element of your home insurance will be taken care of by your landlord as part of their landlord insurance.
You may wish to take out contents insurance based on the value of everything you’ve brought into the property. If the property is part-furnished, you needn’t worry about including the landlord’s furniture as this should be taken care of by your landlord.
If you own a flat within a block of flats on a leasehold basis, the owner of the building should have insurance to cover any damage to the common parts of the building.
Do I need to insure with my mortgage lender?
According to Sainsbury’s Finance research, 1.5million homeowners wrongly believe they need to have their buildings insurance through their mortgage provider. This is not the case, and you can often save money by moving to another insurer.
When looking for buildings or contents insurance it’s best to shop around for the best price and the right level of cover. MoneySupermarket’s home insurance comparison tools are independent and free to use, so you can be sure to get the best price on the most suitable cover for you.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.