Your home is possibly the largest purchase you will ever make, and it is an investment in your family’s future. Home is where the heart is, and this is the place where your family gathers and seeks sanctuary from the outside world. We fill our homes with a variety of furniture, appliances and personal items like clothing. Over time, our homes are filled with things that make us happy and add our personal touches. All of these items add to the value of our homes and our assets in general.
Most people will put their life savings into their home, and others may take out a bank loan to purchase their home. Regardless of how you finance your purchase, it would be best if you had a safety net. No matter how well built your home is and how careful you are, things can go wrong. Accidents happen, and things get broken or lost. Unfortunately, homes also get broken into and sometimes our valuables are stolen.
Every homeowner should take out a home insurance policy to protect their investment. Life can be challenging enough without having to worry about needing to rebuild or replace home contents. If you’re unsure where to start with getting your home and contents insured, this guide will help you get the cover you need and the peace of mind that comes with the right insurance policy.
What Is Home Insurance?
Everyone needs insurance. It is a form of risk management that can protect you from suffering a huge financial loss. In the case of home insurance, you will effectively be protecting yourself from losing financially in the event of adverse weather conditions, fire, accidental damage or theft. In short, if your home or contents are damaged, lost, stolen or destroyed, your insurance policy will cover the cost of these events so you can rebuild those aspects of your home or replace your lost items[i].
What Does Home Insurance Cover?
There are two types of policies that are available for those seeking home insurance. House or building insurance covers the actual structure, while contents insurance covers any damage to the personal possessions contained within your home.
Is Home Insurance Mandatory?
If you own your home outright, taking out a home insurance policy is not mandatory. However, if you’ve taken out a mortgage to purchase your home, your bank or lender will insist you take out a home insurance policy as they are technically a part-owner of your home until you have paid your mortgage in full.
While you may not be compelled to take out home insurance, it’s still a good idea to take out a policy. Homes are expensive, and so are the contents. If anything is destroyed, damaged or lost, it will be difficult to replace without insurance backing.
What Does Building Insurance Cover?
The main part of a home insurance policy is building insurance. These policies cover the actual structure or dwelling. Building insurance covers things like:
- Fire
- Smoke damage
- Snow, ice, hail or torrential rain damage
- Theft and wilful damage
- Fire or explosions
- Water damage
- Public liability coverage
Most insurance companies will also offer you additional coverage for structural damage to your home and any other buildings on your property, such as garages, sheds, gazebos, etc.
What Does Contents Insurance Cover?
Contents insurance[ii] covers loss or damage to the items inside your home. This includes your possessions, clothing, furniture, appliances, and other valuables. Many policies have new for old coverage, so if your television is stolen or destroyed, the policy will cover the cost of replacing your TV with a new one.
There are a few things you need to be careful when it comes to your contents insurance. For example, there are some items that you will often take out of the home. Think along the lines of cameras, laptops, etc. If these are items you need to take on the road from time to time, make sure you include this information on your policy.
What Insurance Do I Need?
If you own your own home, you should definti4ly take out building insurance regardless of whether the house is under a mortgage or not. Part of your home insurance should also include public liability cover. Unfortunately, we have become a litigatory society, and if someone is hurt on your property, they may sue you. Public liability cover will insure you in the event of someone taking you to court for tripping over a tree root or being bitten by your dog.
Whether or not you take out contents insurance is a different issue. Regardless of whether you are renting or own your home, you should seriously consider taking out contents insurance. If you have a house full of old furniture and don’t have an overloaded wardrobe full of clothes, you may not want to take out contents insurance. It’s probably still a good idea to include contents insurance with your home or building insurance because even if you feel your contents aren’t worth insuring, you may find it difficult to replace everything lost in one hit.
How Is Home Insurance Calculated?
Several factors determine how much insurance you need to pay. It’s easy to assume that you need to cover the market value of your home, but insurance does not cover the value of the land your home is built on. Your home is generally insured for what it would cost to rebuild your home if it is completely destroyed.
Other factors also come into play when your policy is being calculated. If you live in an area prone to flooding, your policy may cost more, and you may even find that the insurance company will exclude flood damage from the policy. Where you live is also taken into consideration as some suburbs have a higher crime rate than others.
Some factors can help to lower your home insurance policy. For example, if you install a security system, home insurance may be cheaper by a few percent. This is because you are taking a proactive approach to protect your investment. By the same token, having an underfloor heating system minimizes the risk of damage to your wall and injury from bumping into protruding radiators and there is almost no chance of a fire erupting in your home with this type of heating system.
I Just Bought A House. When Should I Get Home Insurance?
If you’ve just signed a contract to purchase your first home, you’re probably wondering when you should start shopping around for a home insurance policy. The answer is immediately. Once you sign on the dotted line, you are technically the owner of the house, even if settlement is still a few weeks away.
It’s also a good idea to keep your contents insurance before you make your move. Your household items can be lost or damaged in transit so let your insurance company know when you’ll be moving.
How Much Is It?
As with all household expenses, we all want to shop around for the best deals in home insurance. In the UK in 2020, the average cost of home insurance[iii] was around £146. The important thing you need to do to ensure you are not paying too much home insurance is to get your home and contents professionally valued. This is crucial if you have valuable paintings or ornaments. For those very valuable items, you should catalogue them properly and take photographs.
Don’t try to estimate the value of your contents. Most people have a tendency to undervalue their personal possessions to keep their premiums lower. However, this can backfire quite badly. If you lose all of your possessions and you’ve underestimated the value of your contents, the policy may only cover you up to a certain amount.
Read The Fine Print
Every single home insurance policy will have a few exclusions. These may include various natural disasters, damage due to riots or civil unrest and things like outdoor vegetation may be excluded from the policy. Contents insurance also comes with exclusions as well. Intentional damage may not be covered, particularly if the damage was caused by a member of your household.
Be very specific if you have possessions of a particular value. Things like collectibles, antiques, artwork and jewellery need to be photographed and properly valued to be covered by your content insurance policy.
The question that is often asked is, “Do you need home insurance?”. Honestly, everyone who owns a home should protect their investment with the right home insurance policy. Series damage to your home can make it inhabitable and, in the worst-case scenario, your home could be completely destroyed due to fire or something equally devastating. While you will be inconvenienced by not being able to reside in your home for a while, if you have home insurance, this interruption to your life will be short lived.
Give yourself the peace of mind knowing that your home will be is covered by the right home insurance policy and take the worry out of keeping your investment safe.
[i] https://www.moneysupermarket.com/home-insurance/guide/
[ii] https://www.citizensadvice.org.uk/consumer/insurance/insurance/types-of-insurance/household-contents-insurance/
[iii] https://www.moneysupermarket.com/home-insurance/price-comparison-index/
