Do you need home insurance ?

Home Insurance

Unlike Car Insurance there’s no legal requirement to have home insurance, though some mortgage companies will make it a condition of the loan to have buildings cover. This raises the question do you need it at all?

Buildings cover is generally a good idea, as there’s always the ‘loss of home’ disaster scenario, though contents cover is a bit more wishy-washy. Ask yourself “what would I do if I lost everything?” How much of it would you actually want to replace? Having said that, done correctly contents cover can be very cheap, so the equation is pretty finely balanced.

What’s the difference between building and contents cover?

They’re two different insurance products, although many companies sell them combined. As a rough rule of thumb, imagine you could turn your house upside down. Everything that falls is covered by contents, whatever stays firm by buildings.

It’s always important to ensure the ‘sum insured’ is correct; this is the amount that you’re covered for. Underinsuring can leave your claims unpaid, overinsure and you’ll pay too much. Full details on how to assess the amount of cover you need in each case are in the Contents and Buildings sections below.

Is it worth combining buildings and content policies?

Combining policies doesn’t always make it cheaper. If you’ve time, get quotes for standalone policies as well, especially if you’re a high risk for one type of cover, eg burglary for contents or flooding for buildings. If the price variance isn’t great, then plump for a combined policy as if a claim falls between the two stools, there’s no ‘jurisdiction’ argument and less admin.

Contents insurance

Underinsuring your contents can result in claims being seriously underpaid. For example, you’re insured for £20,000, but actually have £40,000 of contents, and then £5,000 worth is stolen. The insurer could then assess your property and only pay out in proportion to your cover, meaning you’ll just get £2,500 back.

How to assess the value of your contents

To work out the correct amount, walk from room to room, noting down what everything would cost on a new-for-old basis, including fittings. It soon adds up. There are a number of useful contents calculators available but our favourite ones, which you can access for free, are via Legal & General.

Alternatively ‘bedroom-rated’ policies mean your sum assured is automatically allocated depending on your location and the number of bedrooms. It’s convenient, but doesn’t guarantee the correct cover. There are also a few ‘unlimited sum insured’ policies. These can be good value for those with contents worth over £50,000, as the price is roughly based on the average £35,000 sum insured (though those with very high contents values won’t be allowed cover).

Very expensive individual goods like antiques and paintings should be professionally valued and listed separately. Watch out – their value often increases over time, so either re-assess or get a policy where the ‘sum insured’ rises annually.

Types of cover

Once you’ve defined the cover level, make sure you’re comparing the price like for like.

New for old. Here the payout should be for the original price of the items, though for clothing there’s usually a wear and tear deduction.

Indemnity cover. Here the broker only pays out the current value of your possessions so, while it’s cheaper, it can leave you in the lurch.

Add-on cover. There are various types. ‘All risks’ includes property taken outside your home like wallets or jewellery; legal cover pays for court costs.

Buildings insurance

This covers the house’s structure and all permanent fixtures and fittings against floods, storm, fire, explosions, malicious damage and other perils.

Who needs it?

If you’re renting a property, your landlord should have buildings insurance. If you have a leasehold housing agreement, then the freeholder will usually have the buildings insurance policy which you’ll pay for via the ‘ground rent’. It’s always worth checking this though.

Thus it’s freehold homeowners who generally need buildings cover.

Most people are substantially overpaying

Buildings insurance is usually a mortgage requirement, and the mortgage provider usually makes a very pretty extra penny by flogging you a policy. Yet there’s no need to get the insurance with your mortgage company, and usually it’s substantially cheaper if you go elsewhere.

What to cover?

A common mistake is to cover the house’s market value (the amount it could be sold for), meaning many people are over-insured and paying way too much.

Actually, the amount you cover (again called the ‘sum insured’) should be the ‘rebuild value’ simply the cost of rebuilding the property if it were knocked down. Therefore location is less important than the value of materials, labour and architects’ fees. However, it’s important any building policy covers the cost of an alternative residence for you if your home were being rebuilt.

Commissioning a survey is the most reliable method to establish the rebuild value, but will be expensive unless you’re getting one anyway when buying a new home. A less accurate, but quicker, option is ABI’s calculator, or simply asking an insurer to give you a rough value based on standard assumptions.

Reduce the risk

All insurance policy prices are based on risk assessments, so to cut the cost, cut the risk. Here are some of the measures you can take. It’s important to remember adding security can cost more than simply paying higher premiums, so there is a balance of cost and safety to be struck.

Extra tricks to cut the cost of your premium

Premium decrease*

Approved locks on all windows and doors. Then ensure they stay locked. Otherwise it may invalidate your claim, even if that isn’t the cause of the problem.

5%

Approved alarm. Fitting NACOSS standard burglar alarms reduces premiums; however these are expensive alarms which require an annual check-up.

7.5%

Increased excess. You will usually have to pay the first £50 of any claim, but the more you’re willing to pay, the lower your premium.

Depends on excess level related to sum insured size

Neighbourhood watch. Some insurers offer discounts if you live in a neighbourhood watch area; however this is becoming less common, as lower premiums already factor in the reduced risk of theft.

1%

No claims. Insurers factor in your claims history, so a record of no previous claims will reduce your premium substantially. When you’ve a claim, consider whether it’s actually worth doing, as it may be cheaper to pay it yourself to avoid an increase in the policy cost.

However it’s important to understand that having a no claims bonus is separate from the actual cost of the policy. So even if you don’t claim, the policy cost may rise if you have a burglary, as if you report it (you’re supposed to) the insurer may assess you as a higher risk of future claims.

20%

Age. The older you are, the less likely you are to make a claim, which makes premiums lower. However, a ‘special price’ for older customers doesn’t mean it won’t be broken by a non-special quote from somewhere else. All insurers use risk based price assessments so this is factored in anyway.

10%

Special precautions. Notify insurers about any special safety precautions for your valuables, such as a home safe.

N/A

Lifestyle. Having a dog / being teetotal / not smoking are all used by some insurers to reduce premiums. If this applies to you it’s worth asking insurers whether it impacts their pricing.

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* Rough estimate, discounts vary widely with each insurer.

We publish this blog for information purposes only and each quotation we provide will be based on the information provided.