Home Insurance
At a glance... home insurance
Your home is likely to be the biggest purchase of your life, and what’s inside it will make up the majority of your possessions. So you’re going to want to make sure it’s protected in the event of an accident.
In these credit-tight times, financial institutions are finding it harder than ever to make any profit out of lending money. So they're searching around for something else, and insurance is right at the top of the list.
For consumers, this is fantastic news. The more institutions that want your business, the fiercer the competition. And this will hopefully mean better policies at lower prices.
When people buy a home, the first subsidiary policy they usually consider is its insurance. Protecting all your possessions and the building they are stored in is considered an essential, yet an astonishing one in five of households in the UK don't have any protection, according to the Office of National Statistics. Not all of these households are homeowners, of course, but their possessions are just as valuable.
Home insurance is divided into to parts - buildings and contents. When you come to buy your home, your lender will ask you about insurance, and will almost certainly offer you its product, or that of one of its partner. While there won’t be anything wrong with it, you will probably find that shopping around will save you a tidy sum.
Lenders earn huge commissions from selling insurance to borrowers, and these costs - often as much as 30 per cent of the premium - are sure to be passed on to you.
Few lenders now say taking their insurance is compulsory, but many do charge an ‘administration fee’ - normally around £25 - if you want to take your business elsewhere, ostensibly so they can check the product is acceptable. It's a simple sum to do - if you save more than the administration fee by going elsewhere then that's what you should do. A number of direct insurers are happy to pay this fee for you, and even those that don’t may save you more than the charge.
Buildings insurance
If you have a mortgage this will be a compulsory product. While the lender retains an interest in your property, it will expect you to protect it. If your house is burnt to the ground, repaying the mortgage will be the last thing on your mind, but it will be the first thing on the lender’s agenda.
There is no industry-wide definition of what buildings insurance comprises, but basically it is what you would leave behind if you moved house. So in addition to the walls, windows and roof, this should include fitted kitchens and bathrooms. It should also cover patios, gardens and outbuildings, such as garages or greenhouses - although you need to inform your insurer of their existence.
Most insurers require you to set an insurable value for your property and this can be where problems arise. The insurable value is not the same as the value of the property - part of that is the land, which you will still own even if there is nothing left on it. This is true even for leasehold flats, as you still retain the right to live in that particular space.
The figure that needs to be insured is the rebuild cost. This is what it would cost to return the property to its existing condition if it were completely destroyed.
It's much less than the value of the property, but it's almost impossible for homeowners to work out themselves. There are so many variables to consider - the type of materials, the location, surrounding buildings and so on. Lenders nowadays don't really expect you to put a figure on it.
The valuation report carried out for your mortgage may tell you this, or you could look at the website of the Association of British Insurers - www.abi.org.uk - which has a calculator that will help you.
Many insurers nowadays will work out the figure for you, based on the location and type of the property, and how many bedrooms it has. They will then guarantee to cover any claim if a disaster does take place.
Buildings insurance is comparatively cheap. The most common causes of household insurance claims is crime-related, and most burglars tend not to steal the fixtures and fittings. Generally, the policy price will reflect the type of property - if you have a thatched roof, for example, expect to pay a fortune - and its location - most homeowners in areas in danger of flooding pay a lot more than those who live at the top of a hill.
Contents insurance
While no-one is going to force you to take it out, only a fool would forego the security of contents insurance.
Contents insurance is supposed to cover everything to do with your home that is not insured by your buildings policy. So carpets and curtains, as well as your less static possessions, will be covered.
Virtually all contents policies nowadays are written on a ‘new for old’ basis. This means that if you claim for an item that has been lost or irreparably damaged, you will get the replacement value, not what the item was worth before the claim.
But insurance companies don’t like handing out cash to claimants; they believe it encourages fraud. What companies do is attempt to replace the items for you. To save money, they have agreements in place with major retailers to provide them with claimed items. So if, for example, your CD collection was stolen, the insurer would request a list of the titles and would acquire them on your behalf.
In many ways, this can work out really well - you don't need to traipse around replacing everything yourself, it just gets delivered straight to you. But with some possessions, it can be quite difficult. Firstly there are items of a sentimental value - if you lose them you don't necessarily want a straight replacement, but the cash. Then there are irreplaceable treasures, family heirlooms, or antiques, that the insurer simply can't find a replacement for. Here, the insurer will negotiate a cash payout.
Specified items
If you have any particularly valuable items - the amount depends on the insurer, but check if anything you own is worth more than £1,500 - then these will have to be specified on the policy. You may be required to provide photographs or serial numbers of the items and if you don't they won't be covered.
Cut costs
Your insurance policy will be priced according to the risk the insurer sees of having to pay out. So anything you can do to protect your home will reduce the cost of the policy. Most of these are security related - installing a burglar alarm or a window locks will lower the premium, for example. Different insurers have different criteria, so it's worth contacting yours to see where you can make savings.
Bundling
While it is not always possible - if you live in a flat for example - most insurers recommend that you take out your buildings and contents insurance together. By doing so, you could save money because many companies offer discounts for taking out both products.
But also, if one company insures both your building and your contents, there is far less chance that in the event of a claim, certain items slip through the net. Most companies have very similar definitions of what constitutes buildings cover and what comes under contents, but if there are any grey areas it could cause a lot of heartache when you least need it.
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