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Home Insurance

Home Insurance

You’ve just signed up for the biggest financial commitment of your life: your first mortgage. At this point, home insurance might seem like just another bill you don’t need.

However, home insurance is a necessary expense. First, because your lender may actually require you to have insurance against damage to the fabric of the building. Second, because you are about to fill your new home with furniture, carpets, curtains, kitchenware, crockery, cutlery, TVs, computers, electronic equipment and all the normal contents of a home. People often underestimate the value of their home contents, leaving themselves financially struggling if they have to be replaced.

Why you need home insurance

There are two types of home insurance: buildings insurance and contents insurance. To explain the difference between the two, insurers often ask you to imagine turning your house upside down and shaking it. Anything that falls out should be covered by contents insurance, and anything that stays in place should be covered by buildings insurance. They can be bought separately or together but since you are probably concerned about the cost at this point, you might be happy to learn that they are generally cheaper when taken as a package.

Buildings Insurance

Buildings insurance provides financial cover if there is damage to the structure and permanent fixtures of your home. Mortgage lenders will generally insist that you take out buildings insurance to protect their investment. If you rent your home, the buildings insurance is the responsibility of your landlord or landlady, but it’s up to you if you want to insure your home contents.

Most policies will cover the following kinds of damage (but always check the policy details before you commit):

  • Storm damage
  • Floods (although many policies will charge more if the house is in a high flood risk area)
  • Earthquakes
  • Lightning strikes
  • Theft
  • Burst pipes
  • Leaks
  • Civil unrest (for example the London riots)
  • Damage by animals which are not pets.

However damage caused by the following is generally not covered:

  • General wear and tear
  • Damage caused by DIY
  • War
  • Terrorism
  • Nuclear contamination
  • Wave pressure from aircraft
  • Damage caused by pets.

Many areas of the UK are prone to subsidence, where the earth around the foundations of your property moves, perhaps due to clay soil, previous mine workings in the area, or nearby tree roots. Insurers may insist that you have a full structural survey done before they will agree to cover subsidence, and there is usually a hefty excess, meaning you have to pay an agreed amount towards the cost of a claim yourself.

Contents Insurance

Contents insurance is protection against damage or loss to your personal property, in other words the items you keep inside your home. Unlike buildings insurance this is not required by mortgage lenders, but it’s worth thinking about whether you’re a homeowner or a tenant.

Items you can cover might include:

  • Electrical equipment
  • Books and DVDs
  • Music collections
  • Furniture
  • Kitchen and dining ware
  • Unfitted kitchen appliances
  • Pictures and ornaments
  • Clothing.

You need to check with your insurer whether your policy covers items that you take out of the home or store outside the home such as bicycles, jewellery, laptops, mobile phones and garden furniture. If any of your items are particularly high value, such as items of jewellery or computers, you may have to get these separately itemised on the policy. Some policies also cover perishable items such as food in your freezer.

Most policies will cover your possessions if they are lost or damaged by:

  • Fire
  • Theft
  • Vandalism
  • Flood
  • Earthquake.

Policies may also cover for accidental damage, but this is usually an extra you have to pay more for.

Contents Insurance: don’t under-value your possessions

When organising contents insurance people often underestimate the value of their possessions. When deciding how much to insure your contents for, you need to consider the full replacement cost of every item in your home right down to the food in your kitchen.

If you are underinsured you at risk of losing out due to a condition in some policies called the ‘condition of average’. This means if you underestimated by half the value of your overall contents and then had to make a small claim you would only receive half the amount of the claim. In other words, if a flood destroyed furniture worth £1,000 the insurance company would only pay out £500.

Home insurance: excess

Most insurance policies have an ‘excess’. This means that when a claim is approved the insurer does not pay out the full amount: you have to put a certain amount towards it yourself. This is the excess. There is usually a compulsory excess, which is a fixed payment set by the insurer. You can also reduce the amount of your premiums by agreeing to pay more than the compulsory amount towards any claims.

For expert advice on the right mortgage for you, call our mortgage advisers on 0141 227 7788 or fill out the form below.

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