Home Insurance (Frequently Asked Questions)
Please note these are general guides to home insurance and do not constitute provision of advice or indicate that a particular product is appropriate for you. Benefits, conditions and exclusions vary from one home insurance policy to another and you should always check the policy summary and policy document to make sure that you understand what you are buying. If you have any questions you should talk to your insurance broker.
What is Home Insurance? For most of us our house and contents represent our largest asset and if we have a mortgage, at the same time our largest debt. Home insurance, also known as Household insurance or Buildings and Contents insurance, provides protection against loss or damage of your property. Protecting this investment against fire, flood, theft and other risks is essential to ensure that you have the necessary financial assistance available, so that you can carry on with life. There often can be no substitute for the loss or damage of your possessions but having proper insurance in place can considerably ease the distress that can occur.
How much cover do I need? For Buildings Insurance, you should make sure that the level of cover you buy (referred to as the Sum Insured) is sufficient to re-build your home in the event of a total loss. It's not the current market value of your home. For example if there was a fire which meant that the house had to be knocked down and re-built, then you would want your insurer to pay for it. The amount of cover then should be sufficient to pay for the demolition and re-building, taking into account the cost of professional fees as well such as Architects and Surveyors.
If you have recently moved into your property then the rebuilding cost would normally be shown on your surveyors or valuation report (if you have one). If not then you can work out the rebuilding cost using the House Rebuilding tables from the ABI. You can find a calculator on the Internet by going to this link http://www.abi.org.uk. If you are concerned that you may not have the right rebuilding value there is no substitute for professional advice and judgement, particularly where a property has any unusual features. Professional advice can be obtained from a Chartered Surveyor: the RICS web site can be used to search for a Chartered Surveyor in your area. http://www.rics.org
For Contents you should cover the cost of everything inside your home. If you imagine you are moving house then everything that you take with you will be your Contents. The best way to work out the correct contents sum insured is to walk around your home making a note of the contents room by room. At the end estimate the value of every item and total the whole. This then will be your contents sum insured.
Valuables Most insurers will regard certain 'high risk' items in the home as valuables. These will usually include items of gold, silver, furs, jewellery, pictures, stamp collections and the like. The policy wording will provide a full list. In a standard policy the insurer will normally limit the total cover available for all valuables to a certain level, perhaps 30% of the sum insured and within that limit they will normally stipulate that no single item can have a value greater than say 5% of the sum insured. So, for example, if your contents were insured for £20,000 up to £6,000 of that amount could be valuable items, with no single item valued at more than £1,000. If you have valuable items that need to be covered then it is best to specify these during the quotation process so that additional cover can be arranged. The insurer may charge an additional premium for items of a higher value and or require further security to be arranged (perhaps locks or an alarm). The insurer may also require that a recent valuation be obtained.
Am I underinsured and does it matter? A recent survey of over 100,000 household contents policies taken out, has highlighted that many homeowners are insuring their personal possessions for less than they did five years ago! It is well known within the insurance industry that home owners consistently under-estimate the value of their belongings and as a result fail to ensure that their contents cover properly keeps pace. Sometimes this is accidental because our possessions are accumulated over time and we do not keep track of how much we have spent while on other occasions people make a conscious decision to underinsure in order to reduce the cost of a policy. This is a false economy because for most homeowners household insurance still represents excellent value for money. When things go wrong - during 2001, for example, flooding damaged 10,000 homes in the UK - you would have been pleased that you had the right level of cover in place.
When insuring your home the insurance company is taking an educated risk. One of the factors they take into account is the value of the building and its contents. If the value you declare is not correct then, as far as the Insurer is concerned, you have not given them all the information they require in order to assess the risk. You pay a premium to the insurer calculated on the risk; if the risk were different then the premium would be different. In practical terms it could mean that in the event of you making a claim the insurer may not pay out at all. Often the insurer will only pay out a reduced amount. For example, suppose you had contents of £20,000 in your home but only insured it for £10,000 i.e. just half the true value. If you had a burglary and £1,000 of property was stolen then the insurer may well only pay out half the value of the claim, £500.
You can see that it is important to insure for the true value of your building and its contents. It's also important to review the figure each year, it's amazing how many additional items you can buy in 12 months! Don't forget if you have a new kitchen fitted, or carpets, fitted furniture, satellite dish, garden tools, sheds, it all makes a difference.
If I take property out of my home am I insured? It is common with contents insurance to offer additional cover as an option to the customer, allowing you to insure certain property both in and out of the home. This is commonly referred to as Personal Possessions cover. Items such as jewellery, furs, cameras and musical instruments can be covered against any type of accidental loss or damage inside or outside the home. Without this extension to your insurance policy you would not be able to make a claim if you lost or had an item stolen whilst out of your home.
How can I reduce my Insurance premiums? With most aspects of household Insurance, the premium is based upon factors over which you have no control. The location of the property, its age, the value of its contents are all fixed and there is little that you can do about it. There are three factors, however, that can make a large difference to the insurance premium and that you can affect directly. The amount of the Voluntary Excess - The Security features of your home - Your Claims history.
Voluntary Excess: If you make a claim it is usual for the insurer to expect you to pay the first part, this is known as the excess. Because the insurer insists that this is paid for each and every claim it is known as the compulsory excess. For most policies this is in the region of £50 to £100. Most insurers are happy to provide a discount on the premium if you are prepared to pay a larger part of any claim, that is accept a larger excess. Because this decision is up to the you it is known as the voluntary excess. The amount of any discount will vary between insurers but is generally in the region of 5% to 15% depending upon how much you are prepared to accept.
Security: All insurers want to reduce the number of theft claims and one of the most effective ways of achieving this is for you to ensure that your home is properly secure. Because security is so effective at reducing theft most insurers are prepared to reward you with a reduction in premium. The insurer will define the type of security that they require in order to qualify for a discount but for most companies there are three particular security measures that count. Good quality locks on windows and doors. A professionally fitted and maintained burglar alarm. Membership of an approved Neighbourhood Watch Scheme. For each of these the insurer will normally give a discount in the region of 2.5% - 10%. Unfortunately, some householders are already in a high-risk area, for example many city centres, and the insurers may insist that certain securities are in place before offering cover. In these cases, of course, no security discount will be applicable.
Claims Discount: Just as with Motor Insurance it is now common practice for insurers to reward those who have not made a claim in preceding years. The level of discount varies from one insurer to another however 5% to 20% is now common and the amount is increasing. With the increased use of the computerised claims register, insurers are becoming increasingly confident that they can check on the number of claim free years that are claimed by any policyholder and therefore are happier about providing a no claims discount.
What about my lender (Bank or Building society)? If you presently have your buildings insurance arranged by your mortgage lender then, the chances are that, you could be paying too much for your cover. It's understandable. Research shows that people often believe that they have to take the insurance that their lender offers. They think it's a condition of their mortgage. In most cases, this simply isn't true and you are free to make your own insurance arrangements. You could make a substantial saving by switching your cover to another provider.