How does Home Insurance work?

Your home is important to you. If you own a home, whether that’s a flat with one bedroom or a spacious four bedroomed detached property, the likelihood is that it will be the single biggest investment you make in your lifetime.

Property is expensive, so it makes sense that it is protected. There’s little point in spending £300,000 to buy a house and then neglecting to look after it. Home insurance provides protection for the building itself and also the contents within it - those prized and personal possessions that make a house a home.

That’s if you have the right level of home insurance in place. But how do you know what type of cover you need? Home insurance can be confusing, particularly if you’re a first-time buyer and don’t really know where to start. This guide will look at exactly what to know about home insurance and answer key questions including, how does home insurance work?

Let’s start with looking at the two types of home insurance - buildings insurance and contents insurance. While many people opt for a combined buildings and contents policy, they are available as two separate types of cover.

Contents:

What is buildings insurance and what does it cover?

Buildings insurance is for the structure of the property itself - the bricks and mortar. It also covers anything that is considered a permanent fixture. This includes the walls, floors, ceilings, roof, doors and windows.

It also covers elements that are considered permanent fittings, such as a fitted kitchen, toilets, bath and sink. Essentially, anything that you wouldn’t remove and take with you if you moved out of the property.

So, if you suffer damage to the roof of your property, this would be covered by buildings insurance.

Exact cover will differ by insurance provider but buildings insurance policies will usually protect you in the case of such events as flooding, fire, damage from trees, burst water pipes and more. Check your policy cover with your insurance provider.

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Is buildings insurance optional?

You don’t have to have buildings insurance but if you have a mortgage your lender might expect you to have cover in place. A mortgage lender might not lend you the funds to help buy a property if their investment isn’t protected - so buildings insurance can be a condition of the mortgage offer. Your lender may expect to be shown details of your buildings insurance policy.

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What is contents insurance and what does it cover?

Contents insurance covers possessions in your home. In general, contents are items that you can take with you if or when you choose to move property. This includes furniture such as sofas, dining room table and chairs, beds and wardrobes that are free-standing and not fitted.

But it also includes smaller items too - items that might not have been expensive to purchase in the first place, but might carry a high sentimental value.

You can expect contents insurance to cover items such as:

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Is contents insurance optional?

Contents insurance is optional. Unlike buildings insurance, your mortgage lender might not insist on you having such cover in place. It’s entirely your decision. But it’s also entirely at your own risk.

Bear in mind that without any form of contents insurance you would have to find the money to replace items yourself. If you were the victim of theft and lost your Ultra HD TV, laptop and two iPads, for example, could you afford to buy replacements?

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How much contents cover do I need?

When you take out a contents insurance policy, you will need to put a value on the cover. How do you decide on an overall total? Simply put, the amount of cover you need is the amount of money you would need to replace everything in your house if it was stolen or damaged. If you lost everything in a house fire, how much money would it cost to replace it all?

The answer is probably a lot more than you might think. Best advice is to make a list of all the items you want covered in your contents insurance policy, and put a price against each one. You may still have receipts for recent purchases. If not, look up similar items online to get an idea of price. You’re better off slightly overestimating the total amount of cover you need than underestimating and leaving yourself underinsured.

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How does new for old home insurance cover work?

When it comes to understanding what to know about home insurance, a key consideration is whether your insurer includes what is known as a new for old policy.

New for old relates to how an item is replaced. If your insurer offers this, they will replace a lost, stolen or damaged item for a new item. This is good news for you. If you had a top-of-the-range laptop stolen, you can expect to have to it replaced by a model of similar value and class.

The alternative is something called indemnity cover, which doesn’t work the same way. Indemnity cover works on market value. So, that expensive laptop that you paid £1,200 for five years ago might now only be worth less than half of that in today’s market, considering depreciation. That being the case, you might have no option but to only replace it with an inferior model.

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What does single item limit mean in contents insurance?

Some insurance providers will put something called a ‘single item limit’ on their policy.

A single item limit means that you might only be able to claim a certain maximum amount on any one item, regardless of how much it actually cost or how much it is valued at. The single item limit applies to valuable items such as jewellery, cameras, and pieces of art.

This could be a problem. If you have an expensive watch valued at £2,500, say, and there is a single item limit of £2,000 on the policy, you won’t be able to fully meet the cost of replacing it through your insurance. That also applies if the watch is part of a larger claim for a selection of items. You’ll want to know if single item limit applies to your policy, as Insurer’s will generally allow you to specify items above the single article limit for an additional premium.

You may want to have a conversation with your insurer about identifying high value items or getting specialist insurance for such items.

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What does accidental damage cover?

Check with your provider but many home insurance policies won’t include accidental damage cover. This type of cover can usually be added as an extra. Accidental damage provides cover if you are involved in any of those infuriating mishaps that end up costing you money to repair.

Spilling a glass of red wine or full cup of black coffee over a brand new carpet, or getting water damage into a MacBook Pro are events that could be covered under accidental damage.

What defines accidental damage is a one-off incident that harms an item. Knocking a TV over, resulting in the screen cracking, would be classed as accidental damage. A TV that needs upgrading after several years of being in use would not.

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Do I need home insurance if I rent?

Yes - if you rent a property you will still need contents insurance to cover the contents if you wish, but not buildings insurance. Typically, Buildings Insurance is the responsibility of the landlord, however you should check your lease/tenancy agreement to make sure this is not a condition of the agreement. You might like to purchase contents insurance though, in order to protect your belongings. You might choose to take out specialist tenants’ insurance cover – this can cover any accidental damage you might make to your landlords property.

If you’re a landlord renting out a property that is furnished, or even partly furnished, then you’ll need to have contents insurance in place.

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What does excess mean on home insurance?

Home insurance excess is the amount of money you will have to pay as part of making a claim. On your policy documents you will see this described in two ways - compulsory excess and voluntary excess.

Compulsory excess is the amount you have to pay; this is set by the insurer.

Voluntary excess is the amount you choose to pay in addition to the compulsory excess if you have need to make a claim. You can set this. In general, the higher you set your voluntary excess, the lower your overall home insurance is likely to be.

Why? Well, if you have a higher voluntary excess it reduces the amount of money the insurer has to pay out.

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How do I claim on home insurance?

If you need to make a claim on your home insurance, the first step depends on the circumstances.

For a non-emergency, you should first call your insurer on the claims number supplied with your policy documents. You will probably need to quote your policy number to help with swift identification and to speed up the process. Explain what has happened within your home and await further instructions.

For emergencies, you should call the right services first. For example, if you have been burgled, your first call should be to the police to report the incident.

If repairs are needed urgently and immediately, you should go ahead and get them done, making sure to keep any receipts or invoices so you can get them reimbursed by your insurer later.

A couple of things to think about - if you have been burgled, your insurers will need the crime reference number issued by the police to assist the claim.

The insurance company may also want photographic evidence of any damage, to support your claim and satisfy themselves that your claim is accurate. For smaller claims they may ask you to take photographs. For larger claims, they may send a representative themselves. A loss adjuster’s job is to assess the extent of any damage.

Your claim can then be processed.

If you do make a claim on your home insurance, be aware that this could affect the price of your premium at renewal time.

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How do I renew my home insurance?

You’ll need to renew your home insurance every year, as policies and premiums are calculated on an annual basis. Some home insurers offer auto-renewal, which means that your cover never lapses - it just updates for another year. The insurer will inform you of this, giving you the opportunity to opt out of auto renewal at any point in your policy cycle or cancel the policy if you choose to.

The renewal period gives you the chance to look for a better insurance policy.

By comparing other home insurance policies you may find that you can save money but still have cover that is just as comprehensive. If you choose to change home insurer, make sure your new policy starts immediately after the old policy ends.

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How can I pay for my home insurance?

There are typically two ways of paying for your home insurance.

The first way is to divide your annual home insurance premium into 12 monthly payments. Paying a smaller amount every month helps to spread the cost instead of trying to find one larger lump sum. You can set up a direct debit so the same amount comes out of your bank account on the same day of every month - making it easier to budget for.

Some home insurance providers might take a larger first payment when you take out a policy with them, followed by fewer and smaller monthly payments.

If you pay monthly, expect an interest charge, so you’ll actually pay more over the course of the annual policy.

If you can afford to pay for the full year in one sum, it usually works out cheaper.

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How can I bring the cost of home insurance down?

Everyone wants to reduce the price of their home insurance - and there are steps you can take to help with this.

Increasing the amount of voluntary excess on your policy is a start, as is calculating accurately the amount of contents cover you need. If you have estimated the collective value of your contents at £55,000, you don’t need cover to the value of £70,000.

Other practical measures involve improving the security of your home. In the eyes of insurers, this helps to reduce the risk of your home being burgled.

So, consider installing a burglar alarm within your home. An alarm system that is visible from the outside of the property acts as a deterrent to potential thieves and intruders. If you have one fitted, make sure you inform your insurer and get it maintained regularly. It’s also one of the questions you are likely to be asked when you complete a quote for home insurance.

Also, get locks fitted to windows and doors. Modern windows should have lockable devices - insurers like these. If yours don’t, make enquiries about getting these added. Review the locks on your doors, too.

Reduce the number of days the house is left unoccupied, if this is a potential issue. You will usually be asked to declare how many days the house is unattended - anything over 30 days might result in a higher premium. 

If there is a Neighbourhood Watch Scheme in operation near your home, join it. Being a member of such a scheme means you have more people ‘keeping an eye’ on your home, and you may even get a discount on your insurance as a result. Again, this is often one of the questions an insurer will ask of you when quoting.

More details on RAC Home Insurance and to get a quote for cover.

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