Home insurance guide
Our nuts and bolts guide to contents and building insurance.
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Home insurance covers your home and its contents against a range of events that could result in loss or damage, or affect your ability to use your home.
These include storms, floods, burglary, fire, accidental damage and theft. Home insurance can also protect you against liability for accidents that occur in your home.
When you buy home insurance you'll pay an annual premium in return for a set amount of cover called the "sum insured".
Home insurance is split into two main categories: buildings and contents. You can either buy two separate policies or a joint policy for both.
Buildings insurance is mandatory if you have a mortgage while contents insurance is optional but advisable.
When you take out a mortgage, the mortgage lender will insist you have buildings insurance. For this reason, most people are offered buildings insurance at the time they take out a mortgage.
However, you're not obliged to buy it from your mortgage lender so it's best to shop around for cover.
If you own a flat, your freeholder will probably arrange the buildings insurance and the cost will be split between the freeholder and leaseholders.
A buildings insurance policy should cover funds to rebuild your home in the event of it being totally destroyed or damaged to the point where complete rebuilding is necessary. The policy should cover against damage resulting from storms and floods, burst pipes, fire, smoke and explosions, subsidence, and vandalism.
A good policy will also provide you with alternative accommodation if your home is uninhabitable for certain reasons.
As well as the structure of your house, buildings insurance covers permanent fixtures and fittings, such as the bathroom and kitchen - basically, anything you couldn't pick up and take with you if you moved house.
Calculating buildings insurance
The amount of buildings insurance you require will be the cost of rebuilding your home. This is called the "sum insured". It is the most your insurer will pay out, even if your house is reduced to ashes, and it may be higher or lower than the property's market value.
It is possible to calculate your own sum insured, but it's also very complicated. However, the rebuild value of your property can usually be found on your mortgage agreement, or the deeds to your home.
Contents insurance covers loss or damage to your possessions in your home in events such as fire, theft, and flooding.
Possessions mean anything you'd take with you if you moved house. This could include clothes, furniture, electrical items, computers, jewellery, frozen food and sports equipment.
Additionally, the policy provides liability insurance in case someone visiting your home injures themselves and decides to sue you.
Contents policies can vary and different things may be covered on different policies. Some policies include "new for old cover". This replaces items with equivalent new versions at today's prices. The alternative is a "wear-and-tear" or "indemnity" policy where the insurer will pay to replace or repair your possessions, but with an appropriate reduction for wear, tear and depreciation. Because claims are smaller, premiums are lower on wear-and-tear policies than for new-for-old policies.
Some policies include accidental damage to electrical equipment or other items. This will cover you if, for example, you break your TV screen by hitting it with a Wii control.
Another important clause is cover for items you usually take outside the home. This includes mobile phones, cameras, MP3 players, bikes, jewellery and sports equipment. This should cover you if you get mugged or lose your handbag.
Other insurance that might be included or could be added for an extra premium includes items in your garden, cover for replacement locks if you lose your keys, and cover for the possessions of student children living away from home.
Legal cover is another common add-on. As the name suggests, this can cover the legal costs of various scenarios including claiming compensation from someone, fighting unfair dismissal from your job or disputes with neighbours.
Calculating contents insurance
To work out how much contents insurance you need, you should add up the value of everything in your home.
The best way to do it is go from room to room and write a list of all the items in it. This includes curtains, carpets, plants, ornaments and jewellery as well as more obvious things like your furniture, TV, stereo and computer. Then work out how much it would cost to replace everything.
Some policies have a "single item limit." Items worth more than this limit need to be insured separately. So if, for example, you had a camera worth £2,000 but the single item limit was £1,500, you would need to get the camera insured separately.
How much does home insurance cost?
The cost of home insurance depends on a number of factors such as where you live, the type of property, your claims history, crime prevention measures (i.e. burglar alarms), whether you live in a flood risk area and how much the property is occupied.
Home insurance premiums will also vary between providers so it's a good idea to shop around. Banks, mortgage lenders and insurance companies all sell home insurance although home insurance products are also sold through brokers, financial advisers and price comparison websites.
Your premium will be affected by the level of excess you'll have to pay in the event of a claim. In general, the higher the excess, the lower the premium.
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