Home Insurance Insurance Basics

Protecting Your Home With Buildings And Home Contents Insurance

Protecting Your Home With Buildings And Home Contents Insurance

The Role Of Insurance In Our Lives – Protect Yourselves, Your Loved Ones And Your Property
Chapter Three

Story Highlights:

In this chapter we consider home insurance and insuring domestic appliances and offer tips about:

  • Buildings insurance
  • Home contents insurance
  • Add-ons and exclusions to home contents policies
  • Combined buildings/home contents policies
  • Where to find home insurance
  • Online comparison sites
  • Ways to reduce home insurance premiums
  • Your home insurance policy
  • Mobile phones – home contents insurance or alternatives?
  • Extended warranties explained – are they necessary?

Along with motor insurance, insuring your home is one of the most popular types of insurance cover. According to research by the ABI, 64% of UK residents have buildings cover while 76% have a policy to cover the contents of their home. In this chapter we explain each type of home insurance before giving advice about where to find the best home insurance policy and how to cut the price of the premiums. Next, we consider whether there are alternatives to insuring your mobile phone on your home contents policy and the pros and cons of all of these ways. Finally, when it comes to domestic appliances, we look at extended warranties and answer the question of whether they are worth it.

Home insurance policies – What are they?

There are 3 kinds of home insurance: buildings, home contents and a combined buildings/home contents policy. Let’s look at each in more detail: who needs it, what it is, what it covers and the different types.

Buildings insurance

Who needs buildings insurance?

You only need buildings insurance if you are a home-owner or a landlord renting out a property; it’s often a condition of your mortgage to take out such a policy. For tenants, buildings insurance isn’t necessary as you’re covered by your landlord’s policy.

A small model house on pair of hands symbolising home insurance

What does buildings insurance cover?

Buildings insurance covers the structure of your home such as the walls, windows and roof as well as the permanent fixtures like the bathroom and kitchen fittings. Policies differ but you’re usually covered for damage caused by vandalism, subsidence, natural events (storms, floods, etc.), falling trees, fire/smoke, explosions, a car/lorry collision, burst water pipes and oil leaks from heating system. However, you aren’t usually covered for damage caused by general wear and tear, leaking gutters, some pests and frost (unless it causes damage to pipes).

In cases where your home is totally destroyed, you’re also covered for the price of totally rebuilding the property from scratch (including the cost of clearing the site and any professional fees). This payment is the cost to rebuild and not the market value of your home if you were to sell it, which is usually significantly higher.

Buildings insurance covers the structure of your home such as the walls, windows and roof as well as the permanent fixtures like the bathroom and kitchen fittings.

Types of buildings cover

There are 2 types of buildings insurance: sum-insured and bedroom-rated. According to the Money Advice Service, over half of policies (16.5 million homes) in the UK are bedroom-rated and almost half of those policies are for at least £250,000.

The main difference between sum-insured and bedroom-rated buildings insurance is that with the first, you have to calculate alone how much money you would need to rebuild your home while with the second the sum is based on the number of bedrooms (with a maximum upper limit). Working out how much it would cost to rebuild your home can be done using a Rebuild Value Calculator, such as the one on the website of the ABI. Considering rising construction costs and building materials, it’s worth investing in an index-linked policy since the sum you’re insured for is up-dated to take account of these increases.

Home contents insurance

Who needs home contents insurance?

Whether you live in rented accommodation or are a home-owner, everyone needs home contents insurance since it protects all of your personal belongings in the home. According to the ABI, the average contents of a home are worth £55,000 – could you really afford to replace them if they were stolen, damaged or even totally destroyed?

What is home contents insurance?

Home contents insurance covers you for the theft, loss or damage to your possessions in the home and includes anything portable that you’d take with you if you were to move.

A living room with a garden view in a home covered by home contents insurance

Summary:

There are 3 kinds of home insurance policy: buildings, home contents and combined buildings/home contents.

Buildings insurance is necessary for home-owners and landlords and covers any damage to the structure and/or fittings of the property.

There are 2 kinds of buildings insurance: sum-insured and bedroom-rated.

Home contents is necessary for everyone and covers you for the loss, theft or damage to any of your personal possessions in the home.

What does home contents insurance cover?

A standard home contents insurance policy should cover you for your valuables in total (often with a single item price limit), money stolen from the home, freezer contents, contents left in the open, theft from outbuildings (garages, sheds, etc.) and personal liability. More than any other insurance policy, there are so many variables to consider and this depends chiefly on your home and what it contains.

Add-ons to home contents policies

There are also a number of adds-on that you should consider when drawing up your policy: home emergency cover, accidental damage, portable personal possessions and downloads insurance. Often there is a fee to add these to a standard policy.

Home emergency cover can be added to a standard policy for around £30 a year. It covers you for a crisis like burst water pipes or a broken boiler as well as replacement locks, pests and electrical faults. However, you should check the limit on a claim as it could be as little as £500.

Most standard home contents policies have limited accidental damages cover but if you want something more comprehensive, you could add this to your policy for £20-£100 depending on the value of the items. You’ll be covered for damage done by young children but not usually anything done by pets.

An all-risks extension will cover you for the loss or damage to portable possessions like hand-bags or mobiles, which are regularly taken out of the home. You could even be covered when you go abroad but read the policy document carefully as there are often restrictions.

Downloads insurance will protect you from financial loss if an electronic device like a mobile phone or tablet is lost or stolen. It covers the cost of replacing all digital content like music, software, games and so on.

For a more analytical overall of what a good home contents policy must/should/could have, the website www.moneyadviceservice.org.uk has a checklist you can consult to find or draw up a policy to suit your circumstances.

Exclusions to home contents policies

A common exclusion to home contents  policies concerns pairs and sets

One exclusion to home contents policies concerns pairs and sets. If you have matching furniture such as a sofa and armchairs and only one is damaged, your claim won’t cover you to replace all of them. Also, you aren’t covered if you run a business from your home or if you’re subletting (unless there are signs of forced entry).

Different types of home contents policies

There are 3 types of home contents insurance policies: bedroom-rated, sum-insured and unlimited sum-insured.

A bedroom-rated home contents policy is calculated according to the number of bedrooms you have and is usually set around £40,000-£50,000. For a sum-insured policy, you have to work out the monetary value of your belongings. This can be done in one of two ways: either you use an online contents calculator to work out their value or you list everything in your home one by one and add up the replacement costs. Unlimited sum-insured policies are often found online and are often fixed so it gives you less freedom to reduce the size of the premiums by increasing your voluntary excess (your contribution to any claim).

You should check to see if the cover for replacing items is new-for-old or indemnity cover. The first will cover you for the full cost of repairing an item or its full replacement value while with indemnity cover, you should deduct an amount for wear, tear and depreciation. Often clothing and bed linen should be valued down for the very same reason.

Questions:

What does it mean if my home is ‘non-standard construction’?

If your home has a flat roof or doesn’t have brick/stone walls or a slate/tiled roof, then it’s considered ‘non-standard construction’. This means that your buildings policy cover is different. In this case, you need a specialist – you could use the BIBA’s ‘Find a Broker’ service.

What buildings insurance do I need for a flat?

If you have a leasehold flat, you might be insured by the landlord who owns the freehold. However, if you have bought a share of the freehold, then you should purchase buildings cover individually or it might be cheaper to use a broker to take out a block policy with the other owners of the flats.

Does my policy cover me for sink-holes?

Check with your insurance provider but your policy usually covers you for sink-holes if they do structural damage to the building. However, you aren’t usually covered for damage to the garden or any external features.

How can I insure a second home?

Generally home insurance policies aren’t valid if the property remains empty for more than 30 consecutive days.

Generally home insurance policies aren’t valid if the property remains empty for more than 30 consecutive days. In the case of a holiday or second home, you need to consult your insurance company for a specialist policy. This usually consists of Full Peril building cover (if the building has no contents), home emergency cover or a second home policy insuring you up to a certain amount.

What is the single item limit on a home contents policy?

The standard limit for one particular item is usually around £1,500. If you own something like a piece of jewellery or audio-visual equipment which is worth more than this, then it should be insured as an add-on. You need to provide proof of purchase/value (a receipt) and should make sure you have a photo of it and that it’s accurately described in the policy.

Summary:

A home contents insurance policy protects you from financial loss due to the loss, theft or damage to your personal belongings in the home.

You could adapt a standard policy with add-ons but must be careful of exclusions.

There are 3 kinds of home contents insurance: bedroom-rated, sum-insured and unlimited sum-insured.

Insurance cover for possessions could be new-for-old or indemnity.

Combined buildings/home contents insurance

Purchasing both policies from the same insurance provider is often more economical as you might be entitled to a discount. Also, if you have to make a claim from both your buildings and home contents insurance policies, it’s much less hassle if you’re only dealing with one company. However, you should make sure they don’t have separate excess or you’ll end up paying it twice and losing money.

Where to find home insurance

Mortgage providers offer home insurance policies although it’s worth shopping around before you make your final choice. Apart from insurance companies and insurance brokers, there are a number of other organisations and places which offer home insurance such as card providers, supermarkets and retailers.

Online comparison sites

Nearly 8 out of 10 householders use an insurance comparison site to have an idea of what’s available before choosing an insurance provider. They give you a great overview but you should use more than one site and be aware of the fact that some companies aren’t on comparison sites. Even when you’ve found a policy that seems to suit you, double check the terms and conditions of the policy when you go to the insurance provider’s website.

Nearly 8 out of 10 householders use an insurance comparison site before choosing an insurance provider.

Using a comparison site also has some limitations. Firstly, you should be aware of the complexities of finding a home contents policy which is tailor-made for your needs. The other is that if a comparison site asks you how much cover you’d like, then you have less choice as it will only pick policies within this price range.

Ways to reduce home insurance premiums

The first way to reduce your premiums is to only purchase the cover which is needed. When you have to calculate the value of your home contents, spend some time doing this accurately. If you overestimate the value of your possessions, then you’ll end up with higher premiums. On the other hand, don’t underinsure as you will lose out in the long-run if you have to make a claim. Make sure that your policy is kept up-to-date so that if you purchase something new or build an extension, this is added to your policy.

Another way to reduce your home insurance premiums is to improve your home security. Most insurers demand a basic level of security such as deadbolts on external doors and locks on accessible windows to deter burglars but if you put in a 5-lever mortise deadlock (which conforms to British Standard 3621) on doors, then you might be entitled to a discount. This is equally true of smoke and burglar alarms; if they are NACOSS (National Approved Council for Security Systems), then your premiums will be lower as the chances of you making a claim will also be lower.

A woman setting a home security alarm as part of her protection with buildings and home contents insurance

Like many other insurance policies, you can reduce the size of your premiums if you pay annually instead of monthly. It might be easier to budget for monthly payments but if you can, pay in a lump sum as the APR interest rate for instalments can be as high as 40%. You will also pay lower premiums if you choose to increase your voluntary excess so you make a higher contribution to any possible claim.

Do you only associate haggling with shopping in open markets in foreign destinations? This isn’t accurate as you can also haggle with your insurance company especially when you’re renewing a policy. In November 2016, the consumer watchdog ‘Which?’ found in a survey that 1/3 of consumers interviewed haggled over their home insurance and 77% were given a better deal or an incentive to stay with the same insurance provider. It’s worth a try as you have nothing to lose.

Summary:

A combined buildings/home contents policy might be cheaper and less hassle when purchased from the same insurance provider but make sure you aren’t paying double excess.

Home insurance policies can be purchased from many places such as banks, building societies, brokers, supermarkets and retailers.

The majority of people use a price comparison site to find insurance but use more than one and be aware of their limitations.

In order to reduce your home insurance premiums, you should value your home contents correctly, improve your home security, pay annually, increase your voluntary excess and/or haggle with your insurer.

Your home insurance policy

Like any other insurance document, it’s absolutely vital that you read the policy with its conditions and exclusions very carefully so you know what you are covered for. Did you know that 1 in 5 claims are rejected by insurance providers since the policyholder wasn’t covered for the specific incident as they had thought?

Like only insurance policies, you’re given a ‘cooling off’ period of 14 days during which you can cancel your policy. However, you’ll probably be charged a fee (for the service you’ve received) and possibly for the days of cover you’ve already had.

Now that we’ve covered the main home insurance policies, let’s look at the question of insurance for mobile phones since it’s one of the most frequent claims that insurance providers receive. Is it worth buying mobile phone insurance and what are your options?

Questions:

If I’m a landlord, what kind of insurance should I have?

Although 57% of landlords think that a home contents policy is sufficient, you should think about purchasing specialised cover. You could take out a loss income policy in case the building and contents are damaged and the property is temporarily inhabitable. This policy would also pay for alternative accommodation for your tenants while the property is being repaired. You could also buy liability insurance for injury which also covers your legal fees. You could add on cover for the replacement of locks and security devices (usually up to £1,000) and accidental damage caused by tenants. Finally, tenant default insurance would cover you for rent arrears.

How much is paid out for home insurance claims?

According to the ABI, the insurance industry pays out £8.1 million a day to repair homes and replace contents.

How much do the 3 kinds of home insurance cost?

Like any insurance policy, it depends on your cover but according to statistics released by the ABI for the 4th quarter of 2016, the average buildings policy costs £265, a home contents policy is £139 whilst the average combined premiums are £298 a year.

Why should I contact my insurer if I will be absent from home for more than 30 consecutive days?

Your policy might be declared invalid after an absence of longer than 30 days since it’s felt that the property is both at greater risk of burglary and is more susceptible to damage since it’s unattended.

Mobile phones – Home contents insurance or alternatives?

Girl with broken mobile phone not covered by mobile phone insurance

Who needs mobile phone insurance?

You should think about getting insurance cover for your mobile phone if you have a history of lost/broken phones, have an expensive smartphone or iPhone and have a long-term contract, couldn’t afford to replace it and wouldn’t want a cheap substitute or you rely on your phone and would need an instant replacement.

Ways to insure your mobile phone

There are a variety of ways to insure your mobile phone: self-insure, purchase cover from your mobile phone provider, add your phone to your home contents policy or insure as part of a packaged bank account. All of these different ways have both pros and cons.

Self-insuring means to put a sum of money into a savings bank account every month to cover the cost of a replacement mobile phone. The money would be available whenever you needed it but the only problem is if something happens to your phone before you’ve had the chance to save the money.

Purchasing cover from your mobile phone provider is usually offered when you buy a new phone. This policy is ideal since you’re covered for the cost of unauthorised calls made before you’ve had the opportunity to report your phone stolen and a replacement phone is given to you immediately. However, this policy can be the most expensive on the market. It’s worth shopping around for other cheaper stand-alone policies but check the cover very carefully.

You could include your mobile phone in your home contents policy and this is one of the cheapest options. However, you may find that your excess is much higher than on a stand-alone policy and you might not be covered for the cost of unauthorised calls. Another problem with making a claim on your home contents policy is that your premiums will rise – is this worth it in the long-term? Also, you might face delays in the claim being settled and in this period, you’ll be left without a phone.

To insure your mobile phone cheaply, include it in your home contents policy

Some packaged bank accounts give you the chance to insure mobile phones and if it’s a joint account, you could have 2 phones insured and make savings on how much you pay. These policies vary in their terms and conditions so you should read them thoroughly to see if you’re covered for unauthorised calls and how high the excess is.

Summary:

You should read the conditions and terms of your home insurance so you know what you’re covered for – fees are often charged for the cancellation of a policy.

Think carefully about whether it’s worth taking out insurance cover for your mobile phone.

There are a number of ways to insure your mobile and they all have both pros and cons.

The most common ways to insure a mobile are to self-insure, through your mobile phone provider, as part of your home contents policy or as part of a packaged bank account.

Now that we’ve considered insurance cover for mobile phones, what about other domestic appliances – do you really need an extended warranty?

What’s an extended warranty?

An extended warranty covers you for any accidental damage to an electrical appliance (which isn’t covered by the guarantee) as well as for repairs after the manufacturer’s or retailer’s guarantee runs out.

Who needs an extended warranty?

You might decide an extended warranty is worth buying if your home contents policy doesn’t cover you for accidental damage. Also, unlike your home contents policy, you don’t have to pay any contribution to a claim (excess). If your home insurance does have accidental cover, you might want to keep your insurance premiums low by not making a claim.

Precautions when purchasing an extended warranty

There are many places that offer extended warranties but you should shop around and read the policy carefully: its duration, exclusions, limits on claims and whether it’s just a service agreement. In general, specialist insurers tend to be cheaper than retailers, monthly instalments work out as significantly more expensive whilst multi-appliance deals are much better value.

Are extended warranties necessary?

Given the fact that consumers in the UK are offered a high level of protection by legislation and that many retailers will extend a guarantee completely free of charge, you may decide that an extended warranty isn’t worth it. Also, considering the falling prices of electrical appliances and the rising costs of repairing such complex technology, sometimes it’s cheaper to buy a new appliance rather than face the hassles and delays while it’s being repaired. Some warranties also put a cash limit on claims or don’t cover the parts and/or the labour.

Questions:

What isn’t covered by mobile phone insurance?

Depending on your policy, you might not be covered for carelessness, theft while the phone was unattended in a public place, water damage and if the phone had no SIM card or didn’t have the original SIM. Also, some insurers won’t provide cover for teenagers under the age of 16 or even 18. Finally, your policy could be cancelled if you wait longer than 12 or 24 hours before reporting the loss/theft to the police.

What consumer protection do I have when buying electrical appliances?

You’re protected by the Consumer Rights Act of 2015 which states that goods must be of satisfactory quality, be fit to do their intended job and last a reasonable amount of time. If you paid by credit card, you’re also protected by Section 75 of the Consumer Credit Act, which covers goods bought for £100-£30,000.

Does a service agreement differ from an extended warranty?

Yes. Unlike an extended warranty, your payments for a service agreement aren’t protected by the FCA if something happens to the company.

Is there a cooling off period if I purchase an extended warranty?

Yes. Under the Supply of Extended Warranty on Domestic Electrical Goods Order of 2005, you’re entitled to cancel within 45 days and receive a full refund.


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About the author

Megan Walsh

Megan, a former employee of over 20 years in the insurance industry, is devoted to sharing her valuable insights on familymoney.co.uk

Apart from her interest in insurance, Megan also enjoys painting, gardening and keeping up with current affairs.

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About The Author

Megan Walsh

Megan, a former employee of over 20 years in the insurance industry, is devoted to sharing her valuable insights on familymoney.co.uk

Apart from her interest in insurance, Megan also enjoys painting, gardening and keeping up with current affairs.

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