How to choose home insurance – what you need to know
First off, what is buildings and what is contents insurance?
You may think you know which is which. But many people don't know.
Where building insurance cover stops and contents cover begins may not be so obvious when you think about it.
For example, is a fitted kitchen buildings or contents?
Well, here's an old trick of used by insurance agents that still holds good.
Take your property and imagine turning it upside down and giving it a big shake.
What falls out of place is contents; what stays fixed in place is buildings.
Most people are going to want both types of insurance.
Certainly buildings is a must if you own your property because it’s probably the most valuable asset you own.
If you’re a renter, your landlord should have you covered for buildings, but almost certainly not for contents.
This guide will help you make a savvy choice when picking home insurance.
READ MORE: How to Save Money on Home Insurance
Spoilt for choice
There are many different policies on the market and getting access to plenty of choice has never been easier – you simply use a comparison tool, like ours.
So, for both buildings and contents insurance, you’ll certainly want to compare prices of polices.
But price is definitely not everything. Getting the right kind of policy and the right level of cover are even more important.
Here’s our checklist to make sure you get the best deal for your needs:
Check it's covered
It’s all too common for people to take out a policy and have little or no idea of what is covered. They just assume everything is!
The golden rule here is ‘never assume.’ Check you know what the policy applies to.
Here’s an example: do you know whether your personal possessions are covered under your contents policy if you take them on holiday, if you take them overseas, or leave them in the boot of your car, or on display on the back seat of your car?
So, before you sign up for cover, check you know what is covered and under what circumstances. Ask as many questions as you like, and even whole scenarios, that start with, ‘so, what happens if I ….”
An insurer must offer information and in a way that's clear and easy to understand. But be aware that with contents insurance especially, there will lots of options, that will all have an effect on the price you pay. So check you need or want them.
Buildings insurance will cover damage to the structure of your home, but it won’t normally cover wear and tear.
You should always check the small print for exclusions as well. There will be clauses in there about how long the property can be left unoccupied, for example. Don;'t ignore these, because if you make a claim, especially a big one, the insurer may investigate. If they find you've broken the agreement by deliberately ignoring the conditions, they might refuse to pay out on your claim.
Don’t think the details don’t matter, because the insurer will think they do if you make a claim.
Have you checked the market?
If you’re getting a mortgage on a property, the lender will insist that you have buildings insurance as a condition of them lending you the cash.
And nine times out of ten, they’ll be eager to arrange this for you.
Don’t let them!
They have not searched the market and found the best price for your needs. Instead, they'll be offering you their own company's product. You will need to prove that you have cover and that the rebuilding cost of the property is accurate, but you’ll be far better off doing a comparison search and finding a good deal yourself.
How much cover do you need?
With buildings insurance, you need to set the level of cover at what it would cost to rebuild your home.
Remember, this is not the same as the worth of your property – it usually costs a lot less to rebuild it, than the actual land it stands on is worth.
So, unless you’re a builder or surveyor, how do you know how much a rebuild would be?
If you’ve just purchased your property and you have a mortgage on it, the rebuild cost will be on the mortgage valuation.
If not, insurers offer advice and many have calculation tools to arrive at a figure. Otherwise, the Association of British Insurers also offers a calculator.
Getting the price correct is worth spending some time on. Arriving at an accurate figure will stop you paying a higher premium than necessary and also avoid under-insuring, which could leave you with a large bill in the event you have to make a claim.
Some policies will offer unlimited cover, which means they’ll pay whatever the cost, but nothing’s for free and this level of cover comes at a price.
Finally, don’t forget to review the figure every few years or so.
What’s your stuff worth?
Not only do you need to calculate the cost of rebuilding your home, but when it comes to contents insurance, you need to know how much your contents are worth.
The final figure might surprise you. The average family home has contents worth around £55,000.
It’s important to get the figure fairly spot on because if you claim and the insurer decides you are under-insured, then what they pay out will be proportionally less.
If you’re 20% under-insured, for example, and you put in a claim for replacement of an item worth £200, the insurer may well accept the claim in full, but will only pay £200 minus 20%, so £180.
The best thing to do is to walk around the home and list everything in an inventory. Include everything, carpets, clothes, curtains, the lot.
Take photos of your possessions, in the rooms where they are, as this supports any claim you may make. Keeping receipts is also a very good idea.
Make sure you know what the limit is on a claim for a single item. If it’s too low for your needs, you’ll need to list items separately and ensure you have specific cover for them.
What’s the annual increase?
Always, always, check the percentage increase of your premium when the renewal notice comes in.
Many companies will try and sneak big percentage increases past you.
Don’t let them, don’t assume they are offering you a good deal. Always check the market at renewal time.
Beyond the bog standard
You can insure lots of things that may not be included as standard in your policy. It’s always worth thinking about what extra cover you might find helpful and then asking your insurer about it.
Most policies will offer content cover on a ‘new for old’ basis. If your TV is stolen, for example, it’ll be replaced with a new one.
Some policies will take into account wear and tear, though, and these are known as indemnity policies. They are cheaper but not great if you have lots of old stuff.
Your old TV, after taking into account wear and tear, may only be worth a few pounds, which, in the event of a claim, is hardly going to enable you to replace it with another TV.
The most popular add on to contents insurance is accidental damage cover. This means that Ming vase is covered if the dog crashes into it, or your carpet is covered if you splash red wine all over it.
But be wary here.
It may be worth covering all eventualities in this way. But an insurance claim should be considered carefully. What you get back may not really be worth the inevitable rise that will take place in your next premium.
Because the best way you can keep your premiums down – apart from shopping around using a comparison tool – is to avoid claiming.
Having said that, it’s important to tailor cover for your individual needs.
Here are some examples of add ons that go beyond just accidental cover:
* Cover for the contents of your freezer, especially useful if you’re going away for an extended period.
* Sheds and other garden features.
* Legal cover – this can offer funds and advice on a wide spectrum of issues, from being sued by someone to the consequences of identity theft.
* Home emergency cover in the event your home is uninhabitable for any reason.
Are you at risk of flooding?
The problem of flood risk is a hot topic these days. Millions of homes are deemed to be at risk.
You may be categorised in this way even if you are far from an obvious water source because many homes are at risk from surface water flooding where the drainage system is overwhelmed.
Even if you are in a high-risk area, you should be able to get cover at a reasonable cost following a deal between the insurance industry and the government.
Since April last year, the Association of British Insurers has had Flood Re in place.
This is funded by the industry and all other insurance policy holders who pay a levy.
The aim is to allow insurance companies to offset their risk of having to pay out on a property that’s in a flood area by reinsuring through Flood Re.
What this means in short is that, even homes that are deemed at risk, can be offered affordable insurance.
A word of warning
Finally, a word of warning.
There were stories in the press not too long ago about a court case in which a corporate claimant had lied to an insurance company about the circumstances of a claim.
The insurance company discovered the untruths and refused the claim.
But a judge ruled that, as the lies were not directly relevant to the claim, they could be disregarded and the insurance claim had to be settled.
There were lots of headlines along the lines of “it’s OK to lie”.
This should be treated with extreme caution.
The ruling will certainly make it harder for insurance companies to hunt down tiny, irrelevant discrepancies in order to turn down a claim.
But, if you deliberately hide a relevant fact from an insurer, or lie about something that’s relevant to them assessing risk, either during a claim, or when taking out a policy, you could well be in for a nasty shock further down the line. And a nasty bill!
The best advice is to tell them what they need to know and be as honest as possible about it.
That way, you’ll be able to get the most important thing out of your insurance – which is to sleep easily at night, knowing you’re covered.
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