Buildings insurance is of vital importance – for example, if your house burnt down do you have the money to cover your losses? Mortgage providers insist that you have building insurance so that in the event of a disaster it can be repaired or rebuilt, as lenders don’t want to be left without security for their loan.
A buildings insurance policy should cover funds to rebuild your home in the event of it being totally destroyed or damaged to the point that complete rebuilding is necessary. Some buildings insurance policies only cover market value, so be sure to check. The buildings policy could also cover against damage caused by events beyond your control including:
Storm and flood damage
Burst pipes and other incidents of water leakage
Fire, smoke and explosions
Vandalism or third party damage
The buildings insurance policy could also provide you with alternative accommodation if your home is uninhabitable. Be sure to not simply opt for the cheapest building insurance quote available and think about your needs.
As well as the structure, buildings insurance also covers permanent fixtures and fittings including baths, toilets and fitted kitchens, bedroom cupboards and interior decorations. The test is whether or not the fixture can be removed and taken to a new home, for example fitted cabinets. Buildings insurance policies will also usually cover outbuildings such as garages, greenhouses and garden sheds but might not cover boundary walls, fences, gates, paths, drives and swimming pools.
For landlords, building insurance is crucial, as it is for all homeowners. For tenants, building insurance is usually covered by the landlord and only contents insurance needs to be considered.
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 isn’t a risk we can afford to take. In the UK, one in three of us will get burgled at some point in our lives yet about a quarter of households are not protected by any form of home insurance. With other unfortunate occurrences such as flood or storm damage, fire and more, threatening our homes and their contents, by not having household insurance we are leaving ourselves open to serious financial loss.
Home insurance can now offer something for everyone with home insurance for homeowners, tenants and landlords. Increasingly, mortgage lenders will insist that you have buildings insurance to obtain a mortgage.
Household insurers will need a lot of information including the construction date and materials for the building, and different insurers might not insure unusual properties such as prefabricated buildings and thatched cottages. Home Insurers also need to know about the local lie of the land to assess the flood-risk.
Buildings insurance – types of cover
The most important factor when insuring your property is to cover the full rebuilding cost and not the market value. The land under your house is not under threat from theft, storms and fire and as the land is normally about a third of the total property value it is important to make sure you cover rebuilding costs rather than market value. It can often prove less costly to rebuild your house from scratch than to buy another, as the land it sits on will usually remain unscathed.
Remember, the same type of house in a slightly different area can have a lower market value than another but yet cost just the same to rebuild in the event of a fire, etc. Therefore, cover your house against the rebuilding cost, and not against its market value for building insurance purposes.
Home insurance comes in two forms - buildings and contents insurance. Buildings insurance is compulsory - mortgage lenders, being a fearful lot, won't part with the necessary unless they can protect that precious asset that you hope to make home.
Contents insurance, on the other hand, is entirely up to yourself for the simple reason that your mortgage lender will not be too put out if your new DVD player gets nicked by a burglar.
Both types of insurance, buildings insurance and contents insurance, are advisable, though human nature being what it is, a third of us don't bother to insure our personal possessions. This despite the fact that the average cost of contents insurance is only £5 to £10 a month. Here's a run through the one you'll have to buy - buildings insurance; what it covers and what to consider when buying it.
Buildings Insurance: What's Covered
As the name suggests, buildings insurance covers the structure of your home together with its fixtures and fittings such as baths and toilets, fitted kitchens, bedroom cupboards, and interior decorations.
According to the Association of British Insurers, most buildings insurance policies will cover you against fire, lightning, explosions, earthquakes, damage due to riot or malicious persons, storm and flood damage, aircraft or objects falling from them, subsidence, heave or landslip, vehicles or animals colliding with your home, collapsing aerials, and leakage from water tanks, pipes or heating installations.
Building insurance policies usually extend to include outbuildings such as garages, greenhouses and garden sheds. However, boundary walls, fences, gates, paths, drives and swimming pools may not be covered - you need to check the policy if you need cover for these areas.
Most buildings policies also offer cover for a range of other issues - such as paying the cost for alternative accommodation if your home becomes uninhabitable, damage to underground pipes and cables supplying gas, electricity, oil, water, or sewage, your liability for damaging someone else's property and glass in doors, windows and skylights.
Issues to Consider when buying your buildings insurance
There are limits (excess) and exclusions to every buildings insurance policy so it's important to go through it carefully. Excess is the amount of money you have to pay towards the cost of each claim, exclusions are eventualities not covered by the buildings policy.
Excesses vary in amount. They may apply only to certain types of claim or they may apply to all claims - your buildings insurance policy will tell you. As far as buildings policies go, subsidence generally carries the largest excess - usually up to £1,000. Flooding is also an issue here - live in a high-risk area and you could be facing high premiums and high excess.
On the exclusions front, your household insurer won't fork out if your house is damaged in a war, or doused with radioactive contamination from nuclear fuel or nuclear waste - but if this happens you'll probably be past caring. Your buildings policy will also probably exclude more mundane matters such as damage by storms or floods to gates and fences.
The final E to consider is Extensions. Cough up a larger premium and your home insurer will be delighted to cover you for eventualities not contained in the standard buildings insurance policy, such as accidental damage you cause to the building or flood damage to that beloved fence post in the back garden. Extra cover can range from £20-£100 a year depending on what you want.
Rebuilding and Reviewing
The first thing to bear in mind when buying buildings insurance is that the cover is supposed to pay for the cost of rebuilding your house. This is not the same as the market value of your house and it can be a tricky thing to calculate.
Many home insurance companies give rough guides to the level of insurance needed for modern homes and quite a few offer unlimited cover - this means your home is automatically covered for the full cost of rebuilding. Your lender should also be able to help you come up with the correct figure for rebuilding for the purposes of your buildings insurance.
If you want to do it yourself, the Association of British Insurers provides a useful leaflet with instructions on how to proceed. Their site also has an online calculator to help you work out rebuilding costs. Remember to add the cost of surveyors' fees, architects' fees and demolition fees to the rebuilding cost - the last thing you want is to be under-insured.
You can also instruct a member of the Royal Institution of Chartered Surveyors to prepare a professional Rebuilding Cost Assessment for insurance purposes - this is especially advisable for older houses, non-estate houses and houses of unusual or complex design (eg. stone built or thatched).
And whatever buildings insurance cover you have, it's important to keep it up to date. If you add an extension this will change the value of the property and you'll need to inform your household insurer and have your buildings insurance cover reviewed.
Buying Buildings Insurance
Because your mortgage lender will not give you a loan without buildings insurance, many offer tie-in deals to borrowers. You are not obliged to take up these deals though in many cases you will be charged a "switching fee" if you arrange cover independently.
Recent research from one of the main buildings insurance providers revealed that 22% of the mortgage market is controlled by lenders who impose such fees, which typically range from £25-£45. However, the research also showed that buildings cover arranged through a mortgage provider can often cost up to 30 per cent more than buildings insurance cover bought elsewhere, so the fee may be worth it - some insurers will even reimburse the fee when you switch (up to £25).
Buildings Insurance is usually offered in two forms - sum assured and bedroom rated. The first (sum assured buildings insurance) calculates the premium based on the rebuilding cost, the second (bedroom rated buildings insurance) calculates the rebuilding cost according to the number of bedrooms - prices may vary so it's worth getting quotes for both.
Recent research revealed that the average cost of buildings insurance cover in the UK is £157, but this varies massively depending on postcode. In London the average is £232 a year, but Kilburn homeowners pay £341 while resident of Twickenham fork out just £168.
Buildings insurance costs vary according to local construction standards, and the cost and availability of labour and materials. Regional crime rates also have an impact, as do geological factors such as the probability of subsidence. Flooding, it need hardly be added, is also a serious consideration.
Buildings insurance explained
Buildings insurance will protect the structure of your home, but not its contents
When insuring your home, you normally need two policies: one for the building itself and another for its contents (see contents insurance).
Buildings insurance covers the structure of your home (walls, windows, roof etc) as well as permanent fixtures and fittings (such as baths, toilets and fitted kitchens).
Buildings insurance generally covers damage due to fire, lightning, explosion or earthquake, theft (or attempted theft), riots or vandalism, storms or flooding, subsidence, falling trees, moving objects (such as a car hitting your home) and escaping or leaking water or oil.
If you have a mortgage, your lender will insist you take out buildings insurance. If you're a tenant, it’s down to your landlord to arrange the insurance for buildings. In other cases, buildings insurance is not compulsory, but you'd be unwise to do without it.
You may find it buildings insurance hard to get cover if you live in an area repeatedly affected by flooding. However, if there are plans to improve flood defences in your area, your existing household insurer should continue to offer you buildings insurance.
Damage to your property due to subsidence is usually covered, although there's often a larger excess (the first amount of any claim you have to meet) for this type of claim – normally £1,000 or more. However, buildings policies usually only cover subsidence damage to the house itself.
Patios, garden walls, driveways and swimming pools aren't usually covered, unless your house is damaged at the same time. Storm damage to gates, fences and boundary walls is normally not covered either.
Accidental damage cover on a buildings insurance policy protects against damage you cause to your building or fixtures and fittings.
Standard buildings insurance policies include some limited cover, for example for accidental damage to glass in doors, windows and skylights, and damage to bathroom fittings such as baths and sinks.
Buildings insurance usually also covers:
Your legal liability as owner of the property, such as liability for damage caused to someone else's property
Damage to underground cables that supply gas or electricity, or pipes that supply oil, water, or sewage
You can pay extra for your buildings insurance to extend accidental damage cover to a wider range of problems. Typically this costs between £20 and £100 a year on top of your premium.
Calculating the level of buildings insurance cover
You can choose the level of buildings cover you need in one of two ways; sum-insured buildings insurance or bedroom-rated buildings insurance.
With a sum-insured buildings insurance policy, you work out how much cover you need and the insurer calculates your premium on that basis. A bedroom-rated buildings policy does away with the need to calculate exact costs, and instead is based on the number of bedrooms your home has (subject to maximum amounts of cover).
It's not always obvious which type offers the best value, so we suggest you get quotes for both before deciding.
The amount of buildings insurance cover you need is the cost of rebuilding your home, which should include the cost of demolition (if needed), clearing the site, and architects' and builders' fees.
The rebuilding cost is not the same as the market value of your home (how much you would get for it if you sold it). To help calculate the rebuilding cost, the Association of British Insurers has an online calculator.
If your home is not of 'standard construction' (which usually means brick walls with a tile roof), you may need to ask a chartered surveyor to prepare a valuation for insurance purposes. You can find one at the Royal Institution of Chartered Surveyors.
Buildings insurance guide
Home insurance may sound desperately dull, but the increasing incidence of extreme weather conditions means that it is more important than ever to ensure that your property is properly covered.
Buildings insurance protects you against the cost of damage to the structure of your home from the elements and is mandatory if your property is mortgaged. Home contents insurance, by contrast, is entirely voluntary, but the two insurances are often bought together because some insurers offer discounts if you take out both buildings and contents insurance policies together.
Arranging buildings insurance is normally the responsibility of the person who owns the property, so if you live in a leasehold property, it is the responsibility of the freeholder to arrange buildings insurance and the cost will be passed onto the leaseholders via a service charge.
In flats and maisonettes, each apartment is normally insured under a single block buildings policy, which also covers the ‘common parts,’ such as the hallway, stairways and lifts.
What does buildings insurance cover?
Buildings insurance covers the cost of rebuilding or repairing damage to your property, other than that arising through wear and tear. The buildings insurance policy will cover the building’s structure, including permanent fixtures and fittings such as built-in kitchen units and appliances, bathroom suites and toilets and built-in cupboards.
Buildings Cover may extend to outbuildings (such as garages and greenhouses). Boundary walls, fences, gates, drives, paths and swimming pools may be covered for an extra premium, depending on the insurance policy terms and conditions.
The building should be insured for its full rebuilding cost, not the market value of the property. If you underinsure, your home insurer will reduce your claim proportionately.
The common risks covered are damage to, and destruction of, the property as a result of:
Fire, storm and flood, lightning, explosion and earthquake; subsidence, heave and landslip; riot and vandalism, theft; aircraft (collision or fallout), falling trees, breaking or collapsing aerials, impact by animals and vehicles; water leakage from pipes or tanks and oil leakage from heating installations.
Buildings Insurance policies may also cover:
liability for damage to individuals and/or their property, up to a given limit (typically £1m);
the cost of alternative accommodation in the event that you have to leave your home while it is being rebuilt or repaired, up to a reasonable level;
accidental damage to underground water, gas and sewage pipes and electrical cables;
replacement of glass in windows, doors and skylights.
Remember to inform your household insurer if your home is used for business purposes, as this could increase the risk (particularly if you keep certain materials and equipment on the premises).
Mitigating your losses
Policyholders are required to keep losses to a minimum by taking pre-emptive action to contain or prevent damage. Thus, if you spot signs of subsidence for example, you should report this to your buildings insurer immediately so that the situation can be assessed and the problem can be fixed at minimum cost.
Don't skimp on home repair costs. Cheap skate repairs can result in more serious problems later, triggering expensive claims (and the possible loss of your no claims bonus).
Excess and exclusions
Certain losses are not covered or are only partially reimbursable on a buildings insurance policy. The policyholder has to meet some of the cost of each claim, known as the ‘excess’ (typically the first £100 of each and every claim), which serves to keep policy premiums down and to deter trivial claims.
Damage caused by subsidence, heave and landslip is usually subject to a higher level of excess, typically around £1,000.
Common exclusions on a buildings insurance policy are losses arising out of:
radioactive contamination from nuclear fuel or waste.
Cover against damage caused by acts of terrorism is a recent exclusion, although this can be added through payment of an additional premium on some buildings policies.
Calculating the sum assured
You can commission a 'rebuilding cost assessment' prepared by a member of the Royal Institution of Chartered Surveyors. This is advisable if your property has unique features (for instance, historic or listed buildings which will have to rebuilt in their original style), is constructed from special materials, and is more than two storeys high and/or has a basement or cellar.
It is possible to do the calculation yourself for a standard dwelling, although you may find that you have to call in a local architect or building firm to assess the cost per meter of rebuilding, for which you are highly likely to incur a fee.
Alternatively, the Association of British Insurers has an online cost calculator and more information on how to calculate the rebuilding cost of a property at: http://abi.bcis.co.uk
Rebuilding costs depend on the floor area of the structure (including outbuildings, walls, fences and any other external structures), the type and age of the dwelling and the region in which it is located (for instance, building costs vary considerably according to area), as well as fixtures and fittings that are part of the fabric of the building.
Don't forget to add in the cost of site clearance, architect and engineers' fees, and emergency accommodation.
The sum assured for your buildings insurance policy needs to be adjusted periodically in order to reflect increases in building costs. Some buildings insurance policies will automatically index your cover each year.
However, the home insurer will not be aware of any home improvements undertaken (for example, a conservatory, a loft extension, new luxury fitted kitchen units) unless you report them, so you may well be yourself underinsured if you fail to do so.
If you’re looking to take out home contents insurance you might want to consider the valuables within your home. Home contents insurance is optional but with the threat of burglaries and fire, searching for cheap contents insurance that covers your needs makes sense.
Household contents insurance gives protection to anything that is not a fixed part of your home, for example your appliances, electronic goods, furniture and clothing. Most home contents insurance policies will even cover the contents of your fridge and freezer. Home contents insurance policies are advisable for homeowners and tenants while landlord contents insurance can be limited if the property is let unfurnished or part furnished.
The cheapest contents insurance available is indemnity insurance, which will replace, for example, a five-year-old carpet with one of the same age. A more expensive option for contents insurance is the ‘new for old’ policy that replaces the old carpet with a brand new one.
Your home contents insurance could also include cover for some items you take away from the home such as bicycles or prams and even the contents of your handbag. Clothing items, watches and mobile phones can also be covered along with sports equipment – though this is not usually covered when it is in use. The key is to check your home contents insurance policy and never assume that items are covered.
Garden plants are increasingly covered in household contents insurance policies – treat your garden as another room and add up the costs of replacements. High value items, such as those more than £1,000 in value, will generally have to be considered separately from your contents policy.
Similarly to building insurance, contents insurance offers protection against various perils including: Fires, Storms, flooding, Explosions, Theft and vandalism.
Contents policies can also include cover in the event of an injury in your home. Furthermore, some contents insurance policies would also cover you for legal liability if someone were injured in your home due to your negligence or lack of upkeep of the property.
Contents insurance – types of cover
It’s vital to avoid under insuring the contents of your home. Most policies will ask you to define a contents ‘sum insured’ – this will be the maximum your insurer will pay out. Under insuring can have drastic consequences because if, for example, the value of the contents of your home is £20,000 and you insure for £10,000 then you will effectively halve the value of your contents. So if you needed a new carpet valued at £2,000, your insurer would only pay £1,000. Be sure to calculate the correct amounts for all of the contents.
The best way to do this is to create a checklist of absolutely everything you have in and around your home. Be sure to include things you have made as well as anything that has been given to you because these things will need to be replaced too. Try to include an approximate date when the items were bought and include any receipts you might have. It’s a fairly lengthy process but well worth the effort to ensure that the contents are insured properly.
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:
Negotiate for the full value to be included.
Insure the item separately.
Break the item down into components of lower value where possible, for example: a camera can have a lens, the main body and peripheral equipment insured separately.
Follow the advice in our home insurance calculator section to evaluate the cost of the contents of your home.
There are a number of variables that can be considered with contents insurance.
Contents insurance – variable options
There are a number of add-on options available in addition to a standard contents insurance policy. These include:
New for old replacement cover – This replaces items with equivalent new versions at today’s prices.
All risks cover – Includes items taken outside your home. These items are usually specified individually, such as jewellery, mobile phones, etc.
Legal cover – This pays for court costs. There are a number of different policies available including:
Compensation for injuries – If you are in an accident that’s not your fault you could claim compensation.
Consumer disputes – Disputes from buying, holding or selling goods.
Disputes with neighbours – Such as new fences, trees blocking light, etc.
Freezer contents cover – Will pay for a fixed amount should the food in your fridge or freezer become inedible.
Sports equipment cover – Such as golf clubs, squash racquets. They will not usually be covered while in use.
Garden equipment cover – Protects against theft from a garden shed.
Additionally, an option to consider in your home contents policy is accidental damage cover, which is standard in a lot of contents insurance policies. This covers against DIY accidents, paint spillages, etc and is available in both building and contents insurance.
Make sure you examine exactly what your household contents insurance policy covers against. All levels of cover should include compensation against theft and fire. However, it could be important to make sure you are covered against storms and flooding, frozen pipes, subsidence and more. Also, if you have extended or plan to extend your property make sure your policy reflects the changes you make.
Contents insurance explained
Contents cover will protect against accidents as well as theft
Household contents insurance covers damage to the possessions in your home, as opposed to the home itself which comes under buildings insurance.
Home contents insurance typically covers damage which occurs due to fire, lightning, explosion or earthquake, theft (or attempted theft), riots or vandalism, storms or flooding, subsidence, falling trees, moving objects (such as a cars hitting your home) and escaping or leaking water or oil.
Contents insurance also usually covers:
your legal liability as occupier of the house, eg if a visitor has an accident and injures themselves
cost of accommodation and storage if you can't live in your home because of damage (e.g. fire, flooding etc)
some accidental damage to stereo equipment, TVs, computers, DVD players and any glass in furniture (e.g. a glass tabletop)
replacement keys and locks, and locksmith's fees if you lose or damage your keys
damage to TV and radio aerials, and satellite dishes
loss of food if a freezer breaks down
theft of cash from your home
contents of your outbuildings (although the amount of cover varies a lot from policy to policy and there may be lower limits for theft).
Optional extras which you may wish to include in your contents insurance policy:
Standard contents insurance policies include some cover for accidental damage – eg to stereo equipment – but don't cover accidental damage to goods or furnishings.
For around £20-£100 extra, you can extend cover to include these items, which can be useful if you have young children. But if your household is less active, accidental damage cover might not be worth paying extra for.
Personal possessions cover
Personal possessions is another possible cover extension area. Sometimes called 'all risks' cover, upping your protection in this way guards against loss of your possessions away from home, eg a handbag or digital camera. However there are restrictions on what's covered, so check with the insurer so that you know what you are paying for.
This covers the cost of legal proceedings if you need to bring action or defend a claim, as part of your contents insurance. It typically covers the legal expenses incurred in most personal injury, consumer, property and employment disputes, as well as for any award of the other party's legal costs.
A few insurers include this cover as standard when you buy house insurance, but most charge an additional premium for it.
New technology brings with it new concerns. If someone broke into your home and stole your mobile phone, laptop and iPod, would you be covered on your insurance policy for the cost of replacing your music, films, ringtones or software you'd downloaded? Just under half the insurers we surveyed now include cover for digital downloads as standard.
In some cases, there are limits on how much you can claim within your home contents insurance policy. For instance, it's difficult to claim the full cost of stolen cash or for all your frozen food if your freezer breaks down.
There is usually a limit on the amount of cover for high-value items, such as jewellery or audio-visual equipment. If you have possessions of a particularly high value, check that they will be properly covered by any household contents insurance policy you're considering.
Some policies won't cover any liability arising from your business or trade if you are working from home.
Other common exclusions
Losses due to theft if you've let or sub-let your house, unless there are signs of forced entry.
Damage which occurs when the house is unoccupied for more than a certain number of days – such as pipes bursting.
Cost of replacing an entire set (of furniture or units, for example) if only part of the set is damaged. You’ll usually receive only the cost of replacing the damaged parts.
It's important to read the contents insurance policy carefully to make sure it provides the cover you need and that you understand your responsibilities (such as locking doors and windows when you leave the property).
Content Policy choices
There are several different types of contents insurance policy you can choose. It's important to go for the right one to make sure you don't end up out of pocket if you need to claim.
New-for-old vs indemnity
With new-for-old cover, the home contents insurer either pays the full cost of repairing damaged items or pays to replace them with equivalent new items if they're stolen or destroyed. Indemnity policies, on the other hand, deduct an amount for wear, tear and depreciation from any payout.
Although an indemnity policy might be cheaper than new-for-old cover, we don't recommend them, because they could leave you much worse off if you have a large claim.
Sum-insured vs bedroom-rated
You can choose the level of cover you need in one of two ways. A bedroom-rated contents insurance policy is based on the number of bedrooms your home has (often subject to a maximum amount of cover).
Alternatively, with a sum-insured policy, you work out how much cover you need, and the insurer calculates your premium on that basis. It's not always obvious which type offers the best value, so we suggest you get quotes for each before deciding.
Contents insurance guide
One in four households fails to insure the contents of their homes because unlike buildings insurance on mortgaged properties, contents insurance is voluntary.
But this could well be a false economy. 2007 has seen a record number of claims for storm and flood damage and anyone who has suffered from flooding must be ruing the day they omitted to buy cover. UK insurers expect to pay out at least £3bn in household insurance claims as a result of flooding in 2007 and the eventual bill could be even higher.
But contents insurance also pays out for losses due to theft or burglary and, for an extra premium, you can buy cover for accidental damage and your possessions while outside the home.
Difference between buildings and contents insurance
In order to distinguish between what is covered by a buildings insurance policy, and what is covered by a contents insurance policy, think of contents as being the items you would take with you if you moved home, the exception to this rule being fitted carpets which, although fixed, come under contents policies.
This means that your furniture, TV, stereo equipment and clothing will all be covered under your home contents policy, but your fitted kitchen and bathroom suite will be covered by your buildings insurance policy.
New for old and indemnity cover
You can insure contents one of two ways:
This means the household insurance company pays you the full cost of repairing the item, or replaces it with a brand new equivalent, if it cannot be repaired, is stolen or destroyed.
Sometimes, this will means that the replacement is superior to the old item (for instance where your PDA model is no longer manufactured and you receive an newer model. That said, not all items, such as clothing, can be insured on the new-for-old basis.
The home insurance company pays you in cash, but makes a deduction for wear and tear, and depreciation.
The sum assured
Calculating the appropriate level of contents cover involves nothing more sophisticated than going from room to room, itemising everything and assigning a replacement value to each item. This can be a hassle, so some household insurers make it easy for you by basing the level of cover on the number of rooms in your home, or offer standard contents insurance cover of, say, £30,000-£50,000 for all your contents.
However, if you have items of high value (such as paintings and antique furniture) you may find yourself under insured by this method, which means that your claim could be scaled down proportionately, in the event of a claim.
Most insurers will ask you to list individual items above a certain value (typically £1,500) and an extra premium will be charged for each item.
In any event, it is usually best to compile a proper inventory. Once you have recorded the value of your worldly goods on a spreadsheet, it should not be too difficult to keep it up to date by entering new purchases, removing items disposed of and amending valuations. It is also a good idea to keep receipts, valuations and photographs of valuable items.
Remember to keep a backup, preferably outside your home (for instance, in your office safe), just in case your records themselves are destroyed in a fire or flood.
The range of risks covered by a contents policy are similar to those covered by buildings insurance, except that they relate to moveable property within (and sometimes outside) the home.
These are: Fire, lightning, earthquake and explosion; storm and flood; internal water damage from tanks and pipes; oil damage from heating systems; theft and attempted theft; impact by aircraft, aerial devices vehicles and animals; falling trees or branches; riot and political disturbances, civil commotion and strikes; legal liabilities.
You can extend the contents cover to specific items that you take out of your home, such as sports equipment, clothing, laptop computers, cameras and jewellery, although you will have to pay an additional premium and there is likely to be a cover limit for each item.
You need to insure your personal possessions for their full value, or risk the likelihood that the home insurance company will scale down your claim proportionately. After all, it is not reasonable to expect the home insurer to carry the full risk if your premium only covers a proportion of the risk.
Excess and exclusions
The household insurance company will require you to meet part of your losses, which is called the policy ‘excess,’ so the higher the excess, the lower the premium.
Because of the nature of the risks to moveable property, the contents insurance company will require you to exercise care in the protection of your possessions, and may refuse to pay or reduce its payout where:
there is no forced entry to your property;
losses arise out of sub-letting;
losses arise where the premises are left unoccupied for longer than a pre agreed period of time (typically 30 consecutive days).
you fail to lock up valuables securely.
there has been failure to take reasonable measures to prevent your water pipes and central heating system from freezing up in winter.
Prevention is better than claim
You can obtain discounts on your premiums by:
installing a burglar alarm;
joining a neighbourhood watch scheme;
by being over a certain age (typically age 50);
installing high quality locks and grilles on windows and ground level doors; and
building up a no claims discount
Working from home
An increasing number of people work from home these days and a standard home contents insurance policy may not be sufficient to cover the risks associated with home working.
For example, you may have office equipment such as computers, laptops, faxed and photocopiers. Business data that you hold on your computer or in your filing cabinet may be at risk from a computer crash, fire, flood and other hazards.
You may store goods, samples and materials on the premises, and if you are running business from home, you are responsible for the physical welfare of clients and staff who enter your premises.
Not only do you and your business face greater risks than the normal householder, but your home insurer may take the view that these additional (business) risks invalidate your home contents policy (namely, the risks would not have arisen had you not been running a business from home).
In such cases, a separate or add-on home business insurance policy is required.
Home business policies
These typically cover the following risks:
portable equipment (laptops, mobiles, Blackberries)
public and employer’s liability (not required if you are a sole trader)
business interruption for oss of revenue/profit as a result of not being able to run your business as the result of some disaster, such as flooding.
Check that business insurance cover does not invalidate your home contents cover. The last thing that you want is for two insurers to argue, in the event of a claim, as to which one is liable for what losses.
For instance, without clear policy wording, a dispute could arise as to whether your stolen computer was a personal or business asset. The safest option is to add a business extension to your existing home contents insurance.