What is home insurance?
Home insurance is designed for homeowners or tenants who want to insure their property and/or it’s contents against any potential damage or theft.
Home insurance can be difficult to get right, as there is an endless sum of potential disasters that could threaten your home. Insuring against every possible eventuality can be very costly. Conversely, excluding certain eventualities on your insurance contract could prove even more costly if that particular circumstance comes to pass.
Therefore, negotiating the right home insurance package involves a careful process of analysing the risk factor of all possible problems that could affect the value and security of your home, and deciding which ones it is important for you to insure against.
There’s no ‘one size fits all’ solution for this kind of coverage, and the type of package or contract you select. The amount you pay will depend highly on your personal circumstances.
What are the main types of home insurance?
There are two main types of home insurance policy: buildings insurance and contents insurance. Some plans may also combine these two types into one all-inclusive insurance package.
What is buildings insurance?
Building insurance is designed to cover only the actual building. Anything that’s attached to the structure of your home will likely be included in buildings insurance. This includes the walls, roof, floors, most bathroom and kitchen appliances, and most permanent fixtures.
Most buildings insurance policies will cover the full rebuild cost of your home in the event of it being completely destroyed.
While building insurance will generally cover your home against destruction, it won’t necessarily insure you for its full market value. This is because, as a general rule, the cost of a whole rebuild will be significantly less than the market value of the home itself, which takes into account other features like the local community and supply and demand.
What is contents insurance?
Contents insurance covers almost everything that building insurance doesn’t. As a general rule, anything that could be taken with you if you were to move house is included in contents insurance. This includes furniture, entertainment, clothing, most jewellery, and most of your personal belongings.
It is important to take some care in accurately listing the estimated value of your home’s contents so you can be confident that it is fully covered should something happen. If certain items in your home are considered ‘high value’, usually over £1,000, you may have to pay a higher monthly premium in order to ensure these specific high-value items are included in your contents insurance.
What does home contents insurance cover?
Contents insurance offers protection from loss or damage caused to the contents of your home by incidents outside of your control such as fire, flooding, theft and accidents.
In some cases this coverage will extend outside of your home. For example, your home contents insurance might offer cover for theft of an item outside of the home, for example a bike or camera. This will not always be the case so check that the individual policy you’re considering offers the cover you need.
You can take out additional coverage for things like accidental damage, which may allow you to make a claim in the event that you drop paint on carpet, or your child takes out some of their excess energy on your laptop and damages the screen.
As always, check the particulars of your policy to confirm exactly what you’re covered for both in terms of incidents and geographical location.
What influences the price of my home insurance?
Important factors that influences the price of your home insurance is the type of coverage you choose, the value of the property and its contents inside, your house security and your location.
There may also be a range of associated ‘risk factors’ that influence the price of your premiums. If you live in an area that is particularly prone to burglary, flooding, or other natural disasters, there is a good chance that you will have to pay more on your premiums in order to balance these risks.
Alternatively, you may be able to exempt your contract from coverage in these particularly high risk areas, in order to avoid paying higher premiums.
What different types of contents insurance are there?
Here’s a quick look at the different types of contents insurance that you may choose. Any one of these options may be better value for you, depending on your personal possessions, so it’s often worth comparing the price of all these and seeing which is the best for you.
- Bedroom rated insurance: With bedroom rated insurance, your premium will be calculated based on how many bedrooms the house has.
- Sum insured home insurance: Sum insured contents insurance will calculate a personal premium based on the value of the contents of your home.
- Unlimited sum home insurance: Unlimited sum contents insurance is similar to sum-insured insurance, except none of your possessions will be excluded from the contract due to high value. If you have a lot of valuable belongings, it may be cheaper to get unlimited contents insurance than worry about insuring things separately.
How much of the value of my contents will I be entitled to?
This differs depending on the nature of your home insurance policy.
- New for old: New for old means you’ll be paid the amount of money it costs to replace a particular item, rather than the inherent value of the original. This could be useful if the cost of, for example, sofas rises significantly between when you purchased your original, and when you have to replace it. In this situation, the insurance will usually cover the cost of the price inflation. In some situations, you may find that there’s a deduction for ‘wear and tear’ – particularly with clothing. New for old coverage also protects you against the declining value of your item. With no insurance, you may find that your used sofa is no longer worth as much at the point of sale as it was when you bought it. You’d therefore have to pay some of the cost of replacement yourself. With new for old coverage, this is not the case. This protection can result in higher premiums than plans without ‘new for old’ coverage.
- Indemnity cover: This is the opposite of new for old insurance. The insurer here will only cover you for the value that your item is worth at the point it needed replacing. You may therefore have to contribute some of the cost of the repair or replacement yourself, but may also pay lower premiums throughout the length of your contract as a result.
What does home insurance not cover?
Because home insurance plans vary so much, it’s impossible to come up with an exhaustive list of things that aren’t available. However, there are a few things that are commonly excluded.
For the contents of your home, any damage that can be attributed to ‘wear and tear’ will likely be excluded. You may have to pay extra on your contract, or choose a different type of insurance plan to ensure that wear and tear damage is included.
Insurers will also tend to exempt any damages incurred from running a home business, and most contracts will include a contingent of ‘high value’ items that are not eligible for claim in the event of damage.
There will also likely be a range of more specific terms that will exempt the insurer from any type of pay-out. The most common of these, is when the house is left uninhabited for more than 30 days a year. Your policy may also be voided if you rent your house.
What is home insurance excess?
If you have to claim on insurance, for whatever reason, there may be what’s known as ‘excess’ on your policy. Excess is the amount of money you yourself agree to contribute towards the cost of a repair or replacement. If the amount of money you require for a claim is, for example, £1,000, the excess is deducted from that price to calculate how much the insurer owes you. If your excess is £100, the insurer will pay £900, if it’s £400, they’ll pay £600, and so on.
Having higher excess included in the contract is a popular way to reduce the total cost of insurance payments. It could work out cheaper for you in the long run to pay slightly less on your monthly payments, and then contribute some of the costs to a repair. Again, whether or not this is right for you depends on your personal circumstances.
Most home insurance plans include some value of ‘compulsory’ excess for all claims, meaning that you will likely have to contribute at least some of the claim yourself. The compulsory excess value will likely vary from provider to provider.
There may also be different values of excess written into your contract for different types of claims. The higher the value of the claim, the more excess you’re likely to pay. You should check the excess conditions of your contract thoroughly before going forward with the agreement. If you’re unaware of the amount of excess you’re required to pay in certain situations, you may find yourself unable to claim the value to which you thought you were entitled.
Do I have to take out home insurance?
This depends on your personal situation. Unlike with cars and vehicles, there’s no legal requirement for your home to be insured. If you’re paying a mortgage however, the bank that loaned you the money may stipulate that the property has to be insured for the length of the mortgage agreement, in which case you will be required to get home insurance of some description.
Do I need home insurance as a tenant?
As a tenant, you will not have to insure the building yourself, as the law stipulates that this is the landlord’s responsibility. Depending on the type of insurance that the landlord provides, your contents may or may not be insured under the same plan, so you may need to take out contents insurance independently.