10 things you need to know about home insurance
Home insurance is one of those things you hope you will never have to claim on, but if disaster strikes it can be worth its weight in gold. Unfortunately, millions of us are leaving ourselves exposed because we don't have adequate cover.
Around 6.5m homes are under-insured and, worryingly, some households have no insurance at all. Yet the average home insurance payout is £1,500, and if you are affected by fire or flood damage, repair costs can run into tens of thousands of pounds. Few of us would be in a position to absorb that from our savings. So home insurance is definitely something to be taken seriously. Here are 10 things worth knowing…
1. There are two types of home insurance
Buildings insurance covers the structure of your home and includes permanent fixtures such as kitchen units and bathroom suites. It doesn't cover the contents of your home, however. For that you need separate contents cover.
A contents insurance policy covers the moveable items in your home such as furniture, clothes, electrical goods and pictures.
If you need both types of insurance it is usually cheaper to buy a joint policy that covers buildings and contents, rather than buying two separate policies from different insurers.
2. Buildings insurance is essential if you own your home
If you have a mortgage on your home, buildings insurance will be a condition of your mortgage agreement.
A mistake many people make when buying a property is that they buy a home insurance policy to start on the day of completion. It is important to have buildings insurance in place from the date you exchange contracts as you then have a financial interest in the property.
3. Shop around
Mortgage providers often try to push borrowers to take out their home insurance. However, even though cover will be a condition of your mortgage this doesn't mean you have to buy it from your lender. You will probably find you can get a cheaper policy elsewhere so shop around and compare prices.
4. Insure the rebuild value
The amount of buildings insurance you need is determined by the rebuild value of your home, not the market price. This is good news as the rebuild value will probably be lower. Use an online calculator, such as The Royal Institution of Chartered Surveyors, to work out the rebuild value.
5. Not everyone needs to buy buildings insurance
If you live in a rental property, it is the landlord's responsibility to have buildings insurance in place.
If you live in a flat, it is the entire building that needs to be insured not just your home. If you own a share of the freehold it is up to you and the other shareholders to arrange buildings cover. But if it is a leasehold property, the freeholder will arrange the insurance.
Even if you have a joint buildings insurance policy, you will still need to arrange your own contents cover.
6. Make sure you have enough contents cover
Many people underestimate the value of the contents in their home and this can cause major problems in the event of a claim.
If the real value of your contents is actually 25% higher than the sum you have insured, your insurer could decide to pay out only 75% of the total claim, leaving you facing a bill that could run into hundreds, and possibly thousands of pounds.
So go round your home and work out the value of your contents. Common things people underestimate are the value of their clothes and collections, such as music or books.
MoneySupermarket's contents calculator will help you work out how much cover you need.
7. There is a limit on protection for individual items
You need to add personal possessions to your contents policy if you have items such as cameras, laptop, jewellery and bikes that you want to insure. This gives you protection when you're out and about, as well as when you're at home. So if you lose your wedding ring or have your camera stolen you can claim.
You won't need to list everything but there will be a value above which items will have to be specified. The upper value varies depending on the policy but it usually £1,000 or £1,500. If you have an item of jewellery worth more than that, or perhaps you own a really expensive bike, it will need to be listed as a specified item.
It's really important to ensure high-value and precious items are properly insured.
8. Make sure your carpets are covered
Accidents happen: a glass of red wine over the carpet or beaker of blackcurrant spilt on the telly, are all-too-common occurrences. If you aren't able to get rid of the stain or the TV stops working, you might think you'll be covered on your home insurance, but you won't necessarily. You need to have accidental cover to give you protection against such eventualities.
Accidental damage cover can be added to your contents policy. It will bump up the premium slightly, but for many people it will be worth paying for because of the peace of mind it gives.
9. Beware the excess
As with car insurance, if you make a claim on your home insurance policy there will be an excess – this is the amount you have to pay towards the cost of the claim. Most insurers levy a compulsory excess and then you can add a voluntary excess.
Opting for a higher excess can bring your premium down, but be careful. If you choose a £150 voluntary excess it's unlikely to reduce the cost of your policy by the same amount, so it could prove a false economy if you do have to make a claim.
Also, compulsory excess can vary, so bear this in mind when comparing prices as you may not be comparing like with like.
10. Don't automatically renew with your existing insurer
You might think shopping around for insurance is a bit of a chore, but it's worth doing. If you simply renew with your existing insurer you'll probably end up paying more than you need. Independent figures show that people save an average of £127 by using MoneySupermarket to compare prices rather than sticking with their existing insurer.
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