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Guide to Home Insurance

THIS GUIDE IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ADVICE

Home insurance is an absolute must, but also a potentially large expense.

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It would be great to economise on premiums, but it's vital not to be caught short on cover if something bad happens.

This guide will show you what you need to cover, but how to avoid paying too much.

First, the essentials…

Buildings cover

If you own rather than rent your home, you need to be able to cover the cost of rebuilding or repairing your property. Buildings cover is the last thing you want to get caught out on: it could leave you homeless and out of pocket by tens of thousands.

Here are the things to check:

  • Rebuilding cost estimate. Your buildings insurance premium is based on the cost of a total rebuild, not the price you paid for your home (it could be more, or less). To get an accurate premium, you need to get the estimate right. Dig out your mortgage paperwork: there should be a rebuild estimate in the mortgage report. If that was some years ago, you'll have to estimate how much it might have gone up since then.
  • Payout limits. Check your insurer's limit on what they'll pay out in rebuilding costs. Some offer unlimited cover, others limit it at £500k, others £300k. You'll probably have to check the fine print for this: a cheap premium could be hiding a low limit, and you really don't want to get caught out.
  • Assumptions can be dangerous: for example, if you're in a £120k terraced home, you might assume £300k is enough buildings cover, but in case of a fire or gas explosion you could end up having to rebuild the properties next door as well. Unlike car insurance, there's no automatic 'third party' cover.
  • Exclusions: make sure your property isn't excluded because of its construction materials, type of foundations, age or condition.

Once you've made sure your buildings cover is adequate, you could get a buildings-only policy (to satisfy your mortgage company), but you should really start thinking about what's inside as well.

Contents cover

The choice here is between contents-only cover, if you're a tenant, or buildings and contents combined, for owner occupiers.

It's vital to accurately estimate the total value of your contents. Don't deliberately underestimate, or assume the insurer will cover anything you lose up to the limit.

Here's why: if you don't cover yourself for what your entire possessions are worth, insurers will only settle a percentage of your claim.

Suppose you are burgled and lose two laptops, a mountain bike and some jewellery. Your total loss is valued at £5,000. Your total cover is for £25,000, with a £500 excess, so you might assume that £4,500 will be paid out.

However, when the insurer sends their loss adjuster to evaluate your claim, they find that you have £35,000 worth of home contents. Since you only covered yourself for 71% of your contents value, they'll only pay out 71% of your claim (£3,571) minus the excess. This leaves you with only £3,071 - £1,929 out of pocket.

So it's important to be thorough. It's surprising how quickly the value of home contents can add up. As well as your obvious loose possessions and furniture, you've also got carpets and curtains to include in the valuation. Don't forget clothes as well: these can add up to thousands on their own.

With contents cover, you've also got to watch for exceptions. Individual items might be partly excluded, e.g. portable electronics might not be covered away from the home, or jewellery might be covered only up to £250 per item. You might need to arrange separate policies for these if cover is a must.

Excesses

To keep premiums down and not have to process lots of small claims, insurers discourage small claims by imposing an excess: this means you have to pay the first few hundred pounds of any claim. As a rule, the higher the excess, the lower the premium. You could volunteer to pay a higher excess to save money at the outset.

Accidental Damage

Do you want to be covered if you accidentally break or damage your carpets, furniture, TV and so on? If so, most home insurers let you add accidental damage cover as an option. This goes for buildings as well: for example, if the children let the bath overflow and your kitchen ceiling comes down as a result, you'd be covered for the cost of repairing it.

However, if you're happy to take your chances with accidental damage, excluding it could save you some money on the premium.

Payout record

Home insurance is only worth having if it actually covers you and pays out when you need it. If you're paying out hundreds a year in premiums, for peace of mind you need to be sure it will pay out and that you won't be left stranded if something happens to your home.

Unfortunately there's no straightforward way for members of the public to check an insurer's payout record. For this, you're better off asking a member of the trade, such as your local insurance adviser. Alternatively, some providers, such as Hiscox, advertise themselves on the strength of their claims service, rather than their price.

It's up to you: a cheaper insurer saves you money in the short term, but companies do differ widely in how they use their judgement when processing claims.

Ways to save money on home insurance:

  • Excesses: volunteer for a higher excess (see above) to save money
  • No claims discounts: insurers reward careful (and lucky) homeowners if they don't claim. Look for an insurer with a generous level of NCD as this can dramatically reduce your premium.
  • Loyalty discounts: ask your car or travel insurer for a buildings and contents quote, then see how much extra discount they can give you as an existing customer. Loyalty discounts aren't amazingly generous (typically 5-10%) but worth having if the quote is already competitive
  • Revise your sum insured: Deduct any unnecessary levels of cover. For example, if you have grown-up children who've moved out, revise your contents cover amount.
  • Negotiate. Negotiate, negotiate! Just ask to pay less. Say you've found a quote for £50-100 lower and ask if they can match it? If the agent is incentivised, you'll be surprised what they might be able to do. There's no need to be shy or assume they've already given their best price: if you push and you succeed, this really is money for nothing!

The right policy

A good home insurance policy can give you enough peace of mind to cancel or steer clear of other insurances you don't really need. For example, check your home insurer's policy on items such as bicycles, iPods, mobile phones and laptops. If they're covered outside the home, and for accidental damage, you might not need that £15-a-month extra insurance your phone company is trying to sell you.

However, do bear in mind that any claims made against these items will reduce your no claims discount when it comes to renewal time, and you've also got the excess to bear in mind. If you're prone to theft away from the home, or to losing things, this might not be a money saver after all.

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