Back to basics: Everything you need to know about home insurance

Home insurance can provide valuable peace of mind that if something happens to your property or its contents, you won’t be left to foot the bill for any repairs or replacements.

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However, many people don’t have sufficient insurance in place. And if they do, they can end up paying the odds for cover which they could find cheaper elsewhere. Here, we explain everything you need to know about home insurance and how to get the best deal.

What is home insurance?

Home insurance is an umbrella term which covers both buildings insurance and contents insurance. Buildings insurance covers the actual bricks and mortar of your property, plus any fixtures and fittings, while contents insurance covers all the belongings in your home.

While it isn’t a legal requirement to have home insurance, mortgage providers will insist on seeing proof of buildings cover before they will agree to lend to you. After all, it’s their risk too while their money is secured against it.

Whether or not you decide to have contents cover too is up to you. But going without it could prove financially disastrous in the event that your possessions are destroyed or stolen.

How much buildings insurance will I need?

Contrary to popular belief, the amount of buildings cover you need does not relate to the value of your property, but instead to how much it would cost to rebuild your home in the event that it is completely destroyed. That means that, while you might have bought your home for £300,000, its rebuild cost might only be £150,000.

You should be able to find the rebuild cost of your property on your survey report, but if this isn’t available then the Association of British Insurers (ABI) produces yearly guidelines on rebuild costs which you can find on its website at www.abi.org.uk.

How do I know how much contents cover I need?

It’s a good idea to work this out room by room. Remember to include all your possessions, from pictures to electrical items, as well as furniture and jewellery. Most home insurance policies provide around £40,000 contents cover as standard, but if you’ve worked out that your contents is worth much more than this, you might want to consider taking out high net worth insurance.

This kind of cover is particularly likely to suit those with several valuable items, as standard cover usually has a single item limit – the maximum you can claim for any one item – of around £1,000 or £1,500, whereas high net worth policies have higher limits. You may also need specialist buildings cover if, for example, you live in a listed property or an unusual home, such as a house with a thatched roof.

What does ‘new for old’ cover mean?

If your possessions are damaged beyond repair, then new for old cover means that they will be replaced with the same or equivalent new item. If, however, your policy only covers ‘wear and tear’ or ‘indemnity’ then the insurer will take into account the age and condition of the item that has been damaged or stolen and will only pay out what it is worth. This kind of cover is therefore cheaper than ‘new for old’ cover.

Is accidental damage included?

Some home insurance policies include accidental damage as standard, so, for example, if you knocked over your TV and smashed the screen, you’d be able to get a replacement. However, in some cases you have to pay an additional premium for accidental damage cover, so always make sure you read the small print carefully.

Are personal possessions covered outside the home?

Again, this will depend on which insurer you take out cover with. Some policies will provide cover for items such as iPads while you are out and about, whereas others won’t, or you might have to pay an extra premium.

Does it really matter if I’m a bit under-insured?

Yes it does. If you haven’t got the right amount of buildings and contents cover in place, then insurers are within their rights not to cough up for your claim in full. So, for example, a claim for £80,000 can be reduced to £60,000 if your total insurance is found to be 25% less than it should be.

What is the policy excess?

All building and contents policies have an excess, which is the part of any insurance claim which you must pay yourself. So, for example, if your policy has a £100 excess, and you need to make a £2,000 claim, if your insurer settles your claim, you will receive £1,900. The excess usually has two elements, the mandatory excess and the voluntary excess.

The mandatory excess is a fixed amount which you cannot change, but you can choose the size of the voluntary over and above that to a certain limit. Increasing the voluntary excess will result in lower premiums, as it reduces the size of any claim for the insurer, but you should never raise the excess so high that it becomes unaffordable, otherwise you might not be able to make a claim at all.

If I rent my home do I need home insurance?

You don’t usually need to take out buildings cover if you are a tenant as it’s the responsibility of your landlord to arrange cover for the property itself. However, you will still need to protect your possessions with contents cover, even if the property is fully furnished.

What if I’m a student?

If you are a student living in shared accommodation, it may be worth looking into specialist student cover. This is designed specifically with students in mind, and will usually cover your valuables, such as your laptop, while you are out and about. However, before taking out cover, it’s worth bearing in mind that certain several insurers will extend the same level of cover provided on a parent’s policy for children away at university at no additional cost.

How much does home insurance cost?

Buildings and contents premiums vary widely depending on which insurer you go to, so it’s really important to compare lots of different policies before buying. Remember that you won’t be rewarded for loyalty either, so you should never just accept the renewal quote every year without shopping around to see if you can find a cheaper deal elsewhere.

What happens in the event of a claim?

You should contact your insurer immediately if you need to make a claim. Take photographs and hang onto anything you can that’s damaged as you may need it as evidence. The insurer may want to send around a loss adjustor to assess the extent of the damage. Don’t arrange for any repairs to take place until you have spoken to your insurer – it may have certain tradespeople it uses, or may require you to supply three quotes before you can proceed.

 

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