What is buildings and contents insurance?
Buildings and contents insurance is placed under the bracket of home insurance. It is a combined insurance that will cover or replace any damage that might occur to the house or its contents, including loss. It is essential for all mortgaged houses, and the majority of other homeowners who do not have a mortgage will also have this type of insurance. It is possible to get the two insurances separately, although you will find that most providers offer them as a combined cover.
- Buildings insurance – This insurance covers your house in case of a disaster where your house is so badly damaged that it needs to be completely rebuilt. The event which caused the damage must have been completely beyond your control, for example storm or flood damage, a major fire, smoke or explosions, water leakage/burst pipes, subsidence, or third party vandalism or damage etc. Mortgage providers will insist that you take out this cover, as it means they will be able to recover their losses in such events. It is like a type of security or collateral for the loan that they have given to you.
- Contents insurance – This covers all items in your house which are not fixed to the property, for example your furniture, jewellery, appliances and clothing. Most of the available contents insurance policies will even cover things like the contents of your refrigerator and freezer! The cheapest type is indemnity insurance. This cover will replace exactly what was there before, so if you claim for a washing machine that was already three years old, you will be given a replacement washing machine that is three years old. The more expensive “new for old” option will give you a brand new replacement of whatever gets damaged or stolen, thus you would get a brand new washing machine. Contents insurance will cover you in most of the same situations as buildings insurance, but also includes theft. Again, any of these perils must have been beyond your control.
Why do I need this type of insurance?Some mortgage suppliers will make this type of insurance compulsory when you take out a mortgage with them, to cover their loan. Otherwise, this insurance is highly recommended to protect you against unforeseen circumstances. Virtually every home in the country will have this type of insurance just for that reason, and it could end up proving to be very costly if you do not take the cover out.
What gets covered by this insurance?There are different types of cover which you can take out with these insurances, and this will dictate what gets covered by the policy.
Unlimited coverThis will mean that you get an automatic payout if any damage occurs to your home, or automatic replacement of any of your furniture etc. The cost of the damage will not be a factor that is taken into consideration, and all payouts will be made. However, the type of damage that occurs to your house will greatly affect whether or not you receive a payout. Most buildings and contents insurance policies will only cover the following events:
- Storm or flood
- Lightning or explosion
- Falling trees or branches
- Subsidence, drag or landslip
- Breakage of glass or sanitary fittings
- Damage from escaped water or oil
- Shock caused to the house by animals, vehicles or aircraft
With buildings insurance, most structural fixtures within your house/property will be covered, ensuring they will be repaired if necessary, or rebuilt if they are beyond repair. These include:
- The structure of your house, e.g. walls, ceilings and the roof
- Gates, fences, hedges and footpaths that all lie within the boundaries of your property
- Permanent fixtures and fittings within the house, such as the kitchen, any fitted wardrobes
- Decoration within your house, for example wallpaper and paint
- Pipes and cables
With contents insurance, standard cover will only apply to certain items in your house. Typical types of insurance offered are:
- Money within your house, up to £500
- Losses on stolen credit cards, up to £500
- Office equipment kept in the house, up to £5,000
- Having new locks fitted if these are broken or damaged, or if keys are lost
- Replacement mirrors or glass broken by accident or through vandalism, full cost covered
- Damage or theft of deeds and other documents within the house, up to £250
- Loss of metered water, up to £1,000
- Damage or theft of satellite equipment, up to £500
- Contents of your freezer, up to £500
Optional extras that you can add to your cover
As well as the most basic cover, there are a number of optional extras, available for an additional price:
- Accidental building damage – This includes damage which you cause to the house, for example whilst doing DIY.
- Accidental contents damage – If you cause damage to any of the contents of your house by accident.
- Personal belongings – This will cover personal belongings, such as iPods, computers etc, regardless of whether they are stolen or damaged in the house.
- Home emergency – If an emergency, such as a burst pipe, occurs within the house, this type of cover will provide you with a tradesman that you can call out for free. It is usually 24 hour cover, and will generally only cover you for a certain amount of work, on average up to £250 (including call-out charge, materials and labour).
- Legal expenses - Some buildings and contents insurance will also cover you if an accident occurs within your house or on your property, and another person is hurt. This legal liability, although rarely needed, could cover you in situations where people will sue if the accident was caused by something or someone within the house.
How do I calculate my contents insurance?
It is important to make sure that you correctly insure all the contents within your house, so you do not incur any losses at a later date. You will not be able to make a claim for something that is more expensive than what you initially valued it for. It is also important not to over-price any of your contents as, if you over-insure, this will greatly increase the premium that you pay on the cover.
Go into every room in your house and write a list of everything in the room that will be covered by the contents insurance. Assess the cost of each item, add a percentage for inflation (your insurance provider should be able to provide you with a guide for this) and this should be the minimum amount that you insure for. Also make a note of how old each item is, as this may sway which replacements you are provided with. Do not try to just guess how much the contents of each room are worth in general, as you could end up greatly under-insuring your house.
How do I calculate the rebuilding cost for my home?
When you insure your house with buildings insurance you need to know how much it would cost to rebuild, so you know how much premium to pay. The rebuilding cost of your house is not the same as the market value of it; it is far less costly to rebuild your house than to buy a similar one which encompasses the land. The Council Tax Band valuation also has no influence over the rebuilding cost of your home.
The Building Cost Information Service (BCIS) provides cost advice and can calculate how much you should value your rebuilding at. It is widely used by surveyors and the Association of British Insurers (ABI) as a reference. You should get advice from a chartered surveyor when providing information to your insurance company but, to get an initial idea, you can use the following guide with the “rebuilding calculator” on the BCIS website:
- Firstly calculate the gross external floor area of the house. This area measures from the external face of the external walls for both floors. Next, square the area you measured for the gross external floor.
- There are different bands according to whether your house is detached, semi-detached, terraced, a bungalow or a semi-detached bungalow. Select which one applies to your house.
- There are also different bands for the age of your house; pre-1920, 1920-1945, 1946-79 and 1980 onwards. Again select the most suitable one.
The next division you have to enter is the region in which you live, which is divided into four:
- Region one: Greater London
- Region two: South East, East of England
- Region three: North West, South West, West Midlands
- Region four: East Midlands, Yorkshire and The Humber, North East, Wales, Scotland.
Once you have selected the correct option for each of these, you are asked to supply information about whether the property has any garages, outbuildings, fences etc., or anything else that is covered by the insurance.
You will then be asked if you wish to calculate inflation. The calculator will give you a rough estimation of the rebuilding cost of your house. However, this guide does not take into account additional features like whether the house is made from brick, if it has a cellar or attic, if the house has any special design features or if, in general, they are of a higher than average quality. Such features would affect how much the rebuilding of the house would cost.
With inflation and other such matters, the cost of rebuilding your house and the contents of it will change every year. Many insurance policies will include index linking in your cover, which means that it will automatically be changed according to their set rate every year. This means that if you house needs to be rebuilt ten years after you first took out the buildings insurance, an automatic update will have been made so that the amount you are given to rebuild you house will, hopefully, have risen accordingly.
However, it is very important that you try and update your insurance policy as often as you can. This means that you will not be under-insured in the future should anything happen. For example, if you put central heating into the house or build a garage, make sure you tell your insurance company about this so your policy is duly updated.
How to get buildings and contents insurance?
There are a plethora of insurance firms out there who will want to sell you their type of insurance and, unfortunately, the only way to tell which one is best for you is to read through them all and evaluate their respective pro's and con's for your particular situation. Many will offer you a discount if you take out both types of insurance.
There are a few price comparison sites which will be able to provide you with price comparisons for many of the different providers, but these sites do not tell you the small print in their terms and conditions. It is just as important to find out what exactly the insurance will cover, and even more importantly, what it will not cover. When you have decided which type of insurance is best, look at the whole package rather than just how much your premium will be. This may end up saving you a great deal more money in the long run.