Home Insurance

Why Take Out Home Insurance Policies

Home insurance, also commonly called hazard insurance or homeowners insurance, is the property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.

Why is Home Insurance Necessary?

It’s easy to think that bad things happen to other people and not ourselves, but the facts suggest that it isn’t a risk we should be taking. In the UK, one in three homes will get burgled at some point in our lives, but only about three quarter's of households are protected by home insurance. With other occurrences such as flood/storm damage, fire and more, threatening our homes and their contents, we are leaving ourselves open to serious financial loss by not having insurance.

Home insurance policies can now offer something for everyone with insurance for homeowners, tenants and landlords. Increasingly, mortgage lenders will insist that you have buildings insurance to obtain a mortgage.

Insurance companies need a lot of information including the construction date and materials used for the building, and different insurers might not insure unusual properties such as prefabricated buildings and thatched cottages. Insurers also need to know about the local lie of the land to assess the flood-risk.

Different Types of Home Insurance

The most important factor when insuring your Home is to cover the full rebuilding cost and not the market value. The land under your home is not under threat from storms, theft and fire and as the land is about a third of the total property value it is very important to make sure you cover rebuilding costs rather than market value. It is less costly to rebuild your house from scratch than to buy another, as the land it sits on will usually remain untouched.

The same home in a slightly different area could have a lower market value than another but yet cost just the same to rebuild in the event of a fire, etc. so covering your house against the rebuilding cost, and not against its market value is wise.

Home Contents Insurance

It’s vital to avoid underestimating the contents of your home. Most policies will ask you to define a ‘sum insured’ – this is the maximum your insurance comapny will pay out. Under insuring can have drastic consequences because if the value of the contents of your home is £40,000 and you insure for £20,000 then you will effectively halve the value of your contents. So if you needed a new sofa valued at £4,000, your insurer would only pay £2,000. Be sure to calculate the correct amounts for all of the contents.

The best way to do this is to create a checklist of everything you have in and around your home including things you have made as well as anything that has been given to you because these things will need to be replaced too. Include an approximate date for when the items were bought and include any proof of purchase you have. It’s a fairly long process but its well worth the effort if you ever need to claim.

Also remember about the limit insurers could place on individual items, as it could be lower than some of your possessions. If this is the case you have three options:

  1. Negotiate for the full value to be included.
  2. Insure the item separately.
  3. Break the item down into components of lower value where possible, for example: a stereo can have a speaker, the peripheral equipment should be insured separately.

There are a number of add-on options available in addition to a standard contents insurance policy.
These include:

  1. New for old replacement cover – This replaces items with equivalent new versions at today’s prices.
  2. All risks cover – Includes items taken outside your home. These items are usually specified individually, such as jewellery, mobile phones, etc.
  3. Legal cover – This pays for court costs. There are a number of different policies available including:
    1. Compensation for injuries – If you are in an accident that’s not your fault you could claim compensation.
    2. Consumer disputes – Disputes from buying, holding or selling goods.
    3. Disputes with neighbours – Such as new fences, trees blocking light, etc.
  4. Freezer contents cover – Will pay for a fixed amount should the food in your fridge or freezer become inedible.
  5. Sports equipment cover – Such as golf clubs, squash racquets. They will not usually be covered while in use.
  6. Garden equipment cover – Protects against theft from a garden shed.

Additionally accidental damage cover, which is standard in a lot of policies, covers against DIY accidents, paint spillages, etc and is available in both building and contents insurance.

Make sure you examine what your insurance policy covers against. All cover should include compensation against theft and fire. However, it could be important to make sure you are covered against flooding and storms, frozen pipes, subsidence and more. And if you have extended or plan to extend your property make sure your policy reflects the changes you make.

Buildings & contents insurance combined

Normally discounts are available for taking both kinds policies out with the same insurance company and it can certainly save you hassle. But just because an insurance company is good for buildings insurance, it does not mean that they will be the best for home contents insurance and vice-versa. Make sure to examine all of your options available.