There are two types of home insurance: buildings insurance and contents insurance. These policies protect you against very different things, and many homeowners will need to take out both types of cover.
Buildings insurance
This insures the fabric of your property – your walls, roof, and foundations, for example – against damage caused by events such as flooding, storms, fire or subsidence. Basically, anything you wouldn’t (or couldn’t) take with you if you moved home will be covered by a buildings policy. This would include windows, baths and showers, built-in wardrobes, as well as things outside your home such as driveways, garden sheds and gates.
Your policy should offer sufficient cover to completely rebuild your home if necessary – for example if it were destroyed by a fire or earthquake. When you apply for a policy, you’ll be asked for your home’s “rebuild value”: but don’t assume this is the same as its open-market value if you were to sell the property.
The rebuild value depends on the cost of materials and labour, whereas the market value also takes into account intangible factors such as proximity to schools or transport links, and what your neighbourhood is like. When you apply for buildings insurance with a price-comparison service, you will be able to use an online rebuilding cost calculator to help you get the right level of insurance. Some buildings policies will give you emergency cover, with a 24-hour hotline to call in case of burst pipes or a broken-down boiler, but you may have to pay extra for this service.
Who needs it?
If you own a house, you need buildings insurance. If you have a mortgage on the house, your lender will probably make it a requirement of the loan. Given that a property is the largest investment most of us will make, the consequences of being uninsured – or underinsured – would be potentially catastrophic if the house were destroyed or severely damaged in a natural disaster.
Who doesn’t need it?
If you’re renting your home, it is your landlord’s responsibility to have buildings insurance, not yours. You could check your landlord is covered if you want to have the peace of mind that an insurer will pay out to quickly deal with any structural problems.And if you live in a block of flats, it is more likely that there will be a policy to cover all the flats rather than each individual apartment.
This could be organised by the freeholder or property management company, with residents paying their share of the premium through an annual service charge.
Flats are rarely covered individually because this leaves any communal areas such as halls, stairways and gardens unprotected.
Contents insurance
This covers your possessions at home against events such as burglary, flooding or fire. You can even get protection against accidental damage, although this is likely to result in higher premiums. As a rule of thumb, if an item is something you could take with you when you moved, it should be covered under a contents policy. One of the most important aspects of buying a contents policy is getting the right level of cover.
Insurers will ask for the total value of possessions covered under the policy: this means you should go from room to room and work out the value of everything you own and would want replaced if they were destroyed in a fire or flood, for example. If you are found to be underinsured, your insurer can reduce your payout proportionately. Bear in mind also that most policies will have an upper value limit for expensive items such as jewellery or electrical equipment.
This could be £1,000, which means applicants need to declare any items worth more than this and pay extra to make sure they are insured. If you buy any expensive items, you should tell your insurer as soon as possible to make sure they are covered. The same applies if the total value of what you own increases substantially, as it might after you get married and receive gifts.
Legal expenses cover
This optional extra on a contents policy means you can claim the costs of taking legal action if you were injured in an accident or unfairly dismissed from work, for example: the action doesn’t have to be related to your home, but it could cover you if your dog attacks a postman, say. It would also give you protection in disputes with tradesmen. There will be an upper limit on what you can claim, say £50,000 or £100,000 per case, and you will usually – but not always – have to pay extra for legal expenses cover.
Who needs contents insurance?
Most people should consider taking out a contents policy if they own anything of value. Even if you are in rented accommodation, your landlord’s insurance will only cover the building and his own property, such as washing machines or fridges.
