Insurance is a critical part of securing a mortgage financially and protects an individual in the areas of life, sickness, accident, income protection and more.
For most homeowners, a house or flat is the most valuable asset that they own. And, whether you own or only rent your home, the value of the contents of your property is likely to be the second most valuable entity that you possess.
A wide variety of home insurance policies are available to cater for the needs of homeowners, tenants and landlords, so it might come as a surprise to learn that a quarter of all UK households are not covered by any form of home insurance.
Three broad categories of home insurance policies are available – buildings insurance, contents insurance and policies combining buildings and contents insurance.
Buildings insurance covers the fabric of your home. Its main purpose is to pay for rebuilding or repairing the structure of your home if it gets damaged in any way. Mortgage lenders almost always insist that borrowers purchase buildings insurance, in order to protect their investment in the property.
Most buildings insurance policies cover the following areas:
- fire and smoke damage;
- storm and flood damage;
- burst pipes and other damage caused by leaking water;
- accidental and deliberate damage caused by people or vehicles.
However, insurers are becoming increasingly fussy about insuring properties against flood damage or subsidence, in some geographical areas. They may charge higher premiums in these areas and insist on large excesses for this type of insurance or, in some cases, may even refuse insurance against these risks.
Buildings insurance policies cover permanent fixtures and fittings such as bathroom items and fitted cupboards. These policies usually cover garages, sheds and other outbuildings and may also cover garden walls, paving, gates and fencing.
Home contents insurance policies vary widely in their scope but should offer cover for all items that are not included in the permanent fixtures and fittings of the property.
Contents insurance policies should cover the following areas:
- domestic electrical appliances (e.g. cookers, washing machines, dishwashers);
- electronic equipment (e.g. television sets, DVD players, computers);
- soft furnishings (e.g. carpets, curtains);
- certain personal items.
Some items may or may not be covered, depending on the terms of the policy. Examples include mobile phones, watches, bicycles and sports equipment such as rackets, golf clubs and shotguns.
The majority of home contents insurance policies also include liability insurance which insures against the risk of accident or injury to third parties whilst visiting the property.
Many insurers offer ‘new for old’ contents insurance policies. If an item (e.g. a television set) is damaged or stolen then these policies will pay for an equivalent new model rather than one of the same age as the original.
Most insurers offer combined home insurance policies. As the name suggests, they include both buildings and contents insurance cover. One advantage of a combined home insurance policy that is often overlooked is that insurers can’t argue about paying out on marginal items that might be categorised either as fixtures and fittings or as part of the home contents.