Home and buildings insurance is an essential you can easily pay over the odds for if you don’t understand exactly what you’re buying.
The term ‘home insurance’ tends to be used as a catch-all for these three types of different cover:
- Buildings insurance: this covers the cost of rebuilding your property, and the repair or replacement of fixtures and fittings attached to the property.
- Contents insurance: this covers the cost of replacing your home possessions
- Buildings & contents insurance: this is the two policies above combined and is often a cheaper way to buy.
So Which Home Insurance Do You Need?
You own the freehold of your property or have a mortgage on it?
In this case, you will need buildings insurance. Many mortgage providers insist that you have a buildings insurance policy in place to protect their financial interest in your property. Contents insurance is a good idea too.
You rent your home or own a leasehold property?
If you rent your home your landlord will be responsible for buildings insurance. If you are a leaseholder, your lease should tell you if you are responsible for ensuring the buildings are insured. The lease may state you have to take out buildings insurance with a named insurer; or the freeholder may take out insurance and charge you for it. You may also find you have to contribute to it through your maintenance and service charge. In almost all cases you’d be advised to get contents insurance for your own belongings.
How can You Reduce the Cost of your Buildings Insurance?
If you have a mortgage on your home, you’ll almost certainly find your lender requires proof of buildings insurance. Your bank or building society will need this to protect their own investment until when you’ve paid off your loan.
But even if you’re in the fortunate position of having paid off your mortgage, you’d be well advised to get buildings insurance. If not, you’ll be financially responsible for its repair or rebuild should your home be affected by a fire or storm damage etc.
Buildings insurance covers the actual physical structure of your property. Simply put, this is the walls, roof, windows, doors, pipes, gates, floors and any fixed fixtures. This includes fitted wardrobes, kitchen cupboards and your bathroom suite etc.
One secret to reducing your buildings insurance outlay is getting the real value of your home pinned down. Many people assume it’s the market value of your property that you need to give. It’s not.
With Buildings Insurance, it’s the ‘Re-Build Value’ that Matters
The ‘sum assured’ is your home’s ‘re-build value’. Most average homes will need £250,000 or £400,000 worth of cover depending on the size.
So don’t rush to look up your property value on Rightmove or Zoopla. The rebuild-value sum is almost always less than the market value of your property.
It is important to bear in mind the estimated re-build cost of your property, especially when considering a buildings insurance policy which offers a number of different options regarding the total amount of cover it would provide. In many cases it can generally be estimated that the property rebuild cost is one third to one half of the property’s market value. However if you wish to get a more exact estimate, or if your property is unusual in any way you can make use of the RICS free rebuild cost calculator.
This will ask you to supply the external floor area of your home. So you’ll need to measure this, check your floor plan or mortgage deeds.
What about Premiums, Renewals & My No-Claims Discount?
When it comes to premiums, and renewal, remember that the cost will be less the greater the no-claims discount (NCD) you’ve built up. NCDs are generally portable from one insurer to the next.
As with most insurance cover, the premium cost will also be reduced if you accept a higher voluntary excess. A mandatory excess gets included in all policies to discourage low value claims that are costly for the lender to administer. The more you are prepared to pay yourself in the event of a claim (by choosing a higher excess), generally speaking the lower your premium will be. However you should always consider if you are comfortable in paying the amount of your excess in the event that you make a claim.