Home insurance explained
By Simon Miller
Home insurance explained
Get to grips with the basics of home insurance, from how it works and what it covers to typical exclusions you need to watch out for.
According to the Association of British Insurers, 76% of households have contents insurance and a further 64% have buildings cover. But how exactly does home insurance work and what does it actually cover?
What is home insurance and what does it cover?
There are three main types of home insurance: buildings insurance, contents insurance, and combined buildings and contents insurance.
Buildings insurance covers the structure of your home – for example, your walls, windows and roof, as well as permanent fixtures and fittings, such as baths, toilets and fitted kitchens – while contents insurance covers the possessions in your home. Combined buildings and contents cover, meanwhile, covers both.
As well as covering you for theft, home insurance also protects you against damage caused by a number of unforeseen events, including flooding, fire and explosions.
Find out more: Finding cheap home insurance – cut the cost of your cover
Is accidental damage covered?
Limited accidental damage is covered under home insurance policies, but more comprehensive cover for accidents costs extra. Your contents policy may protect you for mishaps that damage your stereo equipment, while your buildings insurance may include cover for windows and skylights.
However, if you want full cover for accidental damage, you will need to pay £20 to £100 extra depending on your policy and the value of your items.
Find out more: Home insurance add-ons, fees and charges – things to watch out for when you’re buying home cover
What is personal possessions cover?
You can use your home insurance to cover your portable items, such as your handbag, mobile phone or tablet, while you are outside of the home and overseas under a personal possessions extension (sometimes called an all-risks extension). However, there are restrictions on what's covered, so check with the insurer to make sure you know what you are paying for.
What happens if I leave my home unoccupied?
As leaving your home empty is likely to make it more at risk from thieves and more susceptible to damage, insurers can restrict your cover in these circumstances. Most insurers will cover your home on the condition that it will not be left unattended for more than 30 consecutive days, so, if this is likely to be the case, let your insurer know.
What other exclusions should I look out for?
As well as not being covered if you leave your home unoccupied for a long period of time, there are a number of other exclusions that are likely to apply to your insurance policy.
There is usually a limit on the amount of cover for high-value items, such as jewellery or audio-visual equipment. If you have expensive possessions, check your policy carefully.
Running your business from home
Some policies won't cover any liability arising from your business or trade if you run it from your home.
Subletting your home
Losses due to theft if you've let or sublet your house may not be covered unless there are signs of forced entry.
Pairs and sets
The cost of replacing an entire set (of furniture or units, for example) is unlikely to be covered if only part of the set is damaged. You’ll usually receive only the cost of replacing the damaged parts.
What is an excess?
An excess is the amount you have to pay towards any claim you make on your home insurance policy. For example, if you have a claim worth £250 and you have a £50 excess, you'll only receive £200 from your provider.
Most home insurers have two types of excess: a compulsory excess, which the insurer sets and can't be modified; and a voluntary excess, which you can set yourself.
Remember to set your voluntary excess carefully. If you're willing to contribute a large amount towards a claim, your insurer will reward you with a lower premium, but this could make claiming on your policy very expensive.
What is the difference between new-for-old cover and indemnity cover?
Any home insurance claim you submit will be settled on either a new-for-old basis or an indemnity basis.
With new-for-old cover, the insurer either pays the full cost of repairing damaged items, or pays to replace them with equivalent new items if they're stolen or destroyed.
Indemnity policies, on the other hand, deduct an amount for wear, tear and depreciation from any pay-out.
Although an indemnity policy might be cheaper than new-for-old cover, it could leave you out of pocket if you have a large claim.
What is the difference between sum-insured and bedroom-rated cover?
There are different ways to select the level of cover you need. A sum-insured policy involves working out the rebuilding cost of your home (not the market price but the cost of rebuilding the property from scratch) and the insurer calculates your premium based on that basis.
A bedroom-rated policy is based on the number of bedrooms your home has, doing away with the need to calculate exact costs. There is however a maximum upper limit to this cover.