How much home and contents cover do I need?
by Lorna Bourke Feb 28, 2008 at 13:10
The one sentence version: Enough to cover the replacement of your furniture and other belongings and sufficient to repair or rebuild your home in the event of a total loss.
The longer version: Buildings insurance is the most important because the sums of money are generally larger than the value of your furniture and belongings. You should insure your home for the cost of rebuilding it in the event of a total loss. This is not the same as the purchase price - usually less. In London, for example, the site on which the property stands is probably worth around half the value of the property. The market value of your home, or the Council Tax band valuation applied, have no direct relationship to the rebuilding cost of your home.
The Association of British Insurers has a rebuilding costs calculator (www.abi.org.uk ) which is very useful and also full details of what is covered on most buildings insurance, as well as available extras such as third party liability and alternative accommodation if, for example, your home is burned down or flooded.
But if your house is of unusual construction such as stone and thatch, timber framed or clapboard, or has very expensive fittings such as wood panelled rooms, marble bathrooms etc, or is very old and a listed building, you should hire a qualified chartered surveyor who is a member of the Royal Institution of Chartered Surveyors (www.rics.org.uk ) to establish the rebuilding costs. You can find a surveyor in your area on the RICS website.
Depending on construction and location, buildings insurance costs around £1 to £1.25 a year per £1,000 of cover. So a three-bedroom semi detached house in the south east, valued at £325,000 might have rebuilding cost of £180,000 and cost £225 a year to insure.
Rebuilding cost is the most your insurers will pay under any circumstances. If you underinsure and there is a total loss, the insurer may scale down your claim by the same proportion as the underinsurance. Regular checks should be made to ensure it remains correct as it is your responsibility as the house-owner to get the sum insured right.
If you live in a leasehold flat, the freeholder will usually arrange buildings insurance and you will have no choice. But check with the freeholder to ensure that you are not underinsured. A good insurance broker who is a member of the British Insurance Brokers Association (www.biba.org.uk )
will be able to help find the most suitable cover, particularly if the property is of unusual construction. You may also be able to buy contingency insurance which covers you for any shortfall if the freeholder has underinsured and the claim is not paid in full.
You can usually save money by buying your contents insurance from the company which insures the buildings. Contents insurance broadly falls into two categories – blanket cover with a fixed amount per room or per household or itemised insurance with specific valuations and a full inventory of contents, antiques, jewelry, works of art etc.
The average home is reckoned to have contents worth £45,000 and there are plenty of policies around which offer cover of up to £75,000 or even £100,000 with premiums based on the number of rooms. If you are making an inventory of all your belongings, estimate the replacement value and obtain a professional valuation for antiques, works of art etc.
It is false economy to underinsure. If you have insured the contents of your home for, say, £35,000 but the real value is £70,000, you are in severe danger of the insurer reducing any payout on a claim by up to 50% to reflect the amount of underinsurance. In the event of a total loss the maximum payout of £35,000 would not be enough to replace your furniture and belongings.
Here again a good insurance broker will help you establish the proper level of cover and find a suitable policy. If you buy on the Internet, make sure that the cover offered is what you need. The cost will depend on the value of the items insured, whether belongings like fur coats and jewelry is insured ‘all risks’ when you are outside the home, the area in which you live and the security at the property. Expect to pay around £3 to £3.50 per £1,000 of cover for an average contents policy.
According to AA Insurance, the average householder pays £218.60 a year for buildings insurance and £150 for contents. And even at the top end of the market, cover for contents of £100,000 may be no more than £600 a year depending on the area in which you live, the location of the property and security systems installed. Some insurers now offer no claims discounts and if you have had a claim in the past three years, many of the online insurers won’t quote.