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Home and Contents Insurance Guide

Introduction

If you have ever bought your own home the chances are you will have discovered rapidly that the monthly cost of keeping a roof over your head is far higher than you originally anticipated.

It is not just the monthly mortgage payments, or even the regular costs involved in replacing or repairing defective items around the property. One of the largest annual bills most of us have to pay is that of buildings and contents insurance.

Surveys show that in almost all large urban areas around the UK, the cost of both types of insurance – one broadly protects the fabric of a home, the other covers possessions inside it – averages about £500 a year.

In London, the bill is closer to £700 and, as is always the case with “averages”, many homeowners find their own costs are much higher than that.

Despite its cost, it is virtually impossible to buy a home without at least taking out home insurance, as distinct from contents protection. Mortgage lenders make it a condition of their loans that such cover must be in place. After all, how else are they to safeguard what remains, until you make your final payment, THEIR property?

As it happens, they are also doing you a favour: if your home burned down, could you afford to rebuild it? As for contents cover: if all your belongings were stolen, or destroyed, how would you replace them?

Despite its semi-compulsory nature, the fact remains that home insurance is a potential minefield: many people pay too much for their cover. Or else they discover, usually too late, that the protection they thought they had was not up to the job.

So how should you approach taking out both types of cover?

One of the most important points to realise is that although often sold within a single package, the two types are completely separate. It often (though not always) makes sense to buy them separately.

The second critical point is that in many cases home or contents insurance offered by your lender is unlikely to be the best value, particularly if offered as a condition of a seemingly cheap mortgage deal. Always shop around.

Here are some other issues to look at when taking out either policy.

Premiums

These are based on an interlocking combination of factors:

The value of the house and its contents. Typically, this is defined less as the purchase price of the home itself, or even its current value, but of how much it would cost to rebuild, theoretically taking account of specific factors such as obtaining access to a site, the materials involved and so on.

Its postcode: people living in inner-city areas often pay more because insurers believe there is a higher risk of burglary and/or vandalism.

The type of property. As above, homes of unusual construction are more expensive to insure, partly because of the added risks involved, such as thatched cottages.

Individual claims history. This is pretty obvious: the more you claim, the more you pay.

Levels of cover

Assuming that all policies are equal is a potentially dangerous mistake.

A basic policy will cover you for a series of specified risks. These include storms, fire, lightning, explosion, subsidence, thieves and vandals.

But it is often sensible to make sure that that the policy also covers frost damage to pipes and accidental damage to underground pipes and cables.

Moreover, damage to a home – and its contents – often happens not so much because of a cataclysmic event but by accident, often caused by the occupier. Cover against such damage, for example a ruined carpet, or accidents to wallpaper and furniture, is usually a sound move.

By the way, remember that in the event of a fire, for example, you will be suffering damage that may need to be claimed from both home and contents insurance at the same time.

Your kitchen units, for instance, should be covered as a “fixed item” under a home contents policy, because they are generally anchored to a wall. But a freestanding cupboard might not be.

A good policy should also cover your legal liability, as the owner, in the event of an injury to a visitor that leads to you being sued.

Exclusions

Most policies have standard exclusions, things for which you are not covered. They include:

• Damage caused because your house has not been kept in a good state of repair

• Costs of routine wear and tear

• Deliberate damage by the insured party (you, that is)

• Smoke damage


• Damage caused by pets
• Belongings outside the home, such as laptop computers, cameras or jewellery although this can be remedied by taking out an “all-risks policy”

Most house contents policies put limits on the amount that can be claimed for specified valuable items, such as electrical goods, jewellery and works of art.

There is often a single-item limit of £1,000 or so and an overall limit of £10,000 for all your valuables. If you have items of greater value, make sure that you check first with an insurer, or a broker, to see if you are covered.

Theft and damage are not usually covered if you are away from your home for a long period – usually 30 consecutive days.

Choosing a policy

When taking out a contents policy, you have two main types to choose from.

New-for-old – this does what it says on the tin: if your belongings are stolen or damaged beyond repair; the policy will pay for the cost of a brand new replacement. Note that this does not mean you will automatically be given the money to buy what you want. More and more insurers replace items themselves; partly as an anti-fraud measure but also because they get discounts on bulk purchases.

Indemnity cover – gives you the current value of your items, often a fraction of the replacement cost. Such policies are often cheaper, but potentially risky in the event of a major burglary or serious damage, such as a fire. Note too, that under clothing and linen are covered only on an indemnity basis even under most new-for-old policies: if your wardrobe consists mainly of Armani, Prada and Christian Dior, look for policies that pay the full replacement value.

More pages

Page 1: Introduction
Page 2: How much cover

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