2. Home insurance - building and contents
Considering how important our homes and possessions are to us, it's surprising that more people don't put more consideration into their building and contents insurance. Could you afford to replace your home if it burned down? Insuring your home is so important that most mortgage providers won't grant a mortgage without buildings insurance; however, it's worth shopping around for policies, as your mortgage provider may not be the best insurance provider.
Buildings insurance will usually cover both the structure and the permanent fixtures such as plumbing, baths, toilets, doors and cupboards. You will need to check your policy to see if it also covers what are considered 'outbuildings' such as garages, garden sheds and the like. The policy may cover for damage from a number of causes, which may include fire, landslide, flood, falling trees, vehicles, earthquakes or lightning.
Equally important should be insuring your home's contents, which are your possessions - your appliances, electronic goods, furniture and clothing. A surprising one in four households doesn't carry contents insurance, though - many of them renters - leaving them liable for loss or damage due to burglary, smoke, fire or flood and water.
Some contents insurance policies may also cover you for legal liability - the loss you would suffer if someone injured themselves in your home due to your negligence or lack of upkeep of the property, and sued you for damages.
Building and contents insurance policies may be sold together, but it's worth investigating the cost of separate policies to ensure you're getting the best price for your coverage.
What does home insurance cost?
With both buildings and contents insurance you will have a choice between basing the cost of your premiums on the number of bedrooms in your house - a convenient, but potentially costly method - and working out the exact value of rebuilding your home and replacing its contents on the sum-insured method, which may be more accurate but is also more complicated and time-consuming.
Both methods carry the risk of over-insuring yourself and paying higher premiums; the sum-insured method also carries the risk of underestimating the value of your home and belongings, and therefore running the risk of being unable to replace everything should it be lost. If you underestimate the value of your belongings in order to save money on premiums you will lose out on any claim, so be as accurate as possible when estimating replacement values.
It's important to work out the amount of buildings insurance you require based on what it will actually cost to rebuild your home, and not simply on the resale value, as these two figures may differ widely and you may be able to rebuild your home for much less than it would cost to buy in a strong real estate market. It is recommended that homeowners contact a chartered surveyor to assess the correct insurance replacement cost of a home.
Premiums on building insurance policies will vary widely from house to house, so don't expect to get the same deal as your neighbour. Your postcode will be one of the first factors to determine your premiums, as some high-crime areas may be at greater risk of burglary. Buildings insurance may also be index-linked, which means premiums will rise in line with the Retail Price Index (RPI).
The style of your house will also be a consideration. Do you have a thatched roof, or similar uncommon construction? Insurance companies will often charge more for unusual features. Listed buildings will also be more costly. Lastly, as with all insurance policies, your previous claims history will also be taken into account.
Your postcode will also be a factor for your contents insurance, but the cost of premiums will vary even more widely due to your individual contents and how much they are worth. In addition, you will need to check whether you have indemnity cover or new-for-old cover. New-for-old insurance is likely to cost more, but it ensures that you are given the amount it costs to replace an item with a new one if it cannot be repaired. Indemnity cover takes into account the age of the item and wear and tear, and only gives a fraction of the new replacement cost.
You will also pay more for your insurance premiums if you wish to cover certain items which will not be kept in your home at all times, such as jewellery or a laptop computer.
Homeowners generally insure the contents of their homes with theft or disaster damage in mind. However, you're probably more likely to damage or destroy an expensive item by accident, so accidental damage cover is a wise idea - it covers you for items that may be dropped and broken, scratched or otherwise damaged.
It is crucial to check the fine print of your building and contents insurance policies to see what is and is not covered, or you may suffer a nasty and expensive shock. The most common buildings insurance exclusions relate to damage from ordinary ageing and wear and tear; damage caused by your own neglect of the property, or by your pets; or damage you intentionally cause to the property.
Most insurance polices will also have limits on what you can claim for individual items, and for the total value of your contents, but you may be able to negotiate more coverage for higher premiums.
Homeowners who travel a great deal need to ensure that their home insurance policies cover them for extended periods away from the property. Many policies will not cover theft or damage if the property is left vacant for 30 days or more, but again, for higher premiums you may be able to arrange special cover.
Who offers home building and contents insurance?
There are a great many home insurance providers, so establish first what sort of coverage and policy you want before shopping around for quotes. Providers include esure, the Post Office, More Than, Lloyds TSB, Saga, Norwich Union, Zurich and the AA.