Protection guaranteed
MORTGAGE MAGAZINE - 1ST MAY 2005
We give you the low down on buildings and contents insurance.
You don’t know how good a policy is until you claim on it. Soothe golden rule is to make sure you’re fully covered from day one.
This adage applies to buildings insurance, despite the fact it is the only insurance that is mandatory and your mortgage lender won’t allow you your home loan unless you have organised cover for your prospective pad.
It’s important to check exactly what you are and what are not covered fro. A policy will usually cover damage or ruin to greenhouses, garden sheds and accidental damage. But it won’t necessarily include damage to boundary walls, fences, gates, paths drives and swimming pools. Neither are you covered if your home is blighted by frost, damp and dry rot. You can arrange extensions for a policy but the price will rise.
Building insurance will also cover for damage to permanent fitted fixtures such as baths, fitted kitchens and toilets inside your home. You’ll need to tell your insurer about extensions, such as a conservatory, to ensure these will be covered.
It’s also important to shop around. Buildings insurance is not hugely expensive and costs the average customer £200 a year, according to the Association of British Insurers (ABI). The easiest way to arrange cover your new home through your mortgage lender. But if you do it this you’ll be paying through the nose.
“Don’t pay the price of apathy,” stresses Simon Burgess, managing director of insurance broker Burgesses. “It’s very important to shop around online and with brokers. You could save at least 40 per cent compared to getting buildings and content insurance with your lender.”
Buildings insurance will cover the cost of rebuilding or repairing your home should a calamity strike and it is ravaged by fire, flood or any other of Mother Nature’s retributions. “If you don’t get it your home could be subject to flood or fire and you could end up homeless,” warns Malcolm Tarling from the Association of British Insurers. The point of buildings and contents insurance is to protect your biggest asset which is your home and all the things you’ve bought over the years.
“The average flood claim amounts to between £15,000 and £30,000 worth of damage. Now how many people have to money to deal with that?”
Many factors determine your monthly premium. The biggest is the environment. Many postcodes in flood and subsidence-blighted areas are uninsurable, so it’s well worth checking beforehand. You can do this at websites such as www.environment-agency.gov.uk and www.upmystreet.com. It might be worth having a proper survey carried out or simply talking to your prospective new neighbours.
Subsidence tends to be a bigger problem in the South East. Post codes in the Severn Valley are at greater risk from flooding, while many properties in East Anglia are uninsurable due to the problems with costal erosion.
Building and labour costs are higher in London so premiums are higher here. The age and type of house you have will play a part as do environmental factors.
Whether your cover is sum-insured, where you have to work out how much it would cost to rebuild the home, or bedroom-rated, where you simply tell your insurer how many bedrooms you have, will also come into play.
You might go on to insure the contents of your new home. It is not mandatory to insure your possessions and one in four, or six million homeowners, don’t bother. Maybe they are put off by the extra expense. The Association of British Insurers says it usually costs around £120 a year. But that figure doubles with accidental damage cover (most possessions are ruined or destroyed by accident).
But you may decide it’s worth your while to prepare for the trauma of treasured items being destroyed or stolen. The contents of a typical home are now worth £44,500, according to the insurer More Than.
Just like with building contents, you may be surprised at what’s not covered in your contents insurance. Policies won’t often cover the belongings you use outside the home. These can be particularly valuable possessions such as jewellery, lap tops, iPods and mobiles. There is also often a single-item limit of £1,000 and an overall limit of £10,000 for all your valuables. Limits, though, can be increased in return for higher premiums. The biggest factors determining the price of contents insurance, are the security and location of your property.
You could pay a higher premium, for instance, if your house was in an inner city and more at risk from burglars. In fact, in some crime hotspots such as Brixton in South London it is impossible to insure your effects. Costs are higher for younger people, too, as they are deemed by insures to go out more. Your occupation is also important. Entertainers pay over the odds, for instance, because they are often away from home. And anyone prone to leaving large amounts of cash or valuables in the home, such as market traders and antique dealers, will also tough out higher premiums.
Beware that there’s often a fine line between what’s classed under contents or building insurance (curtains and carpets, are fitted by can also be removed, for example). So you might decide to get your buildings and contents insurance together at a discount. “You can get a combined discount on building and contents insurance by about one and a half times the individual cost,” says Sturgess.
But watch out you don’t under insure your possessions.
A recent study from M&S Money warned that 92 per cent of us undervalue our home contents by a third, while the remaining eight per cent over value them.
Malcolm Tarling says: “Insuring your possessions for the right amount is vital. Many people are likely to under estimate the value of the contents in their home – with potentially serious consequences if they need to claim.” He recommends going from room to room totting up how much it would cost to replace possessions if stolen or damaged. “It is important to do so to ensure that you do not face any nasty surprises if you do need to claim.”
Switch
If you’re unhappy with you deal you can switch insurers if you wish without being penalised. Unless you’ve made a claim previously you’ll get the rest of your money back, minus the odd admin charge.
You might save a few pennies by switching. If you’re paying for your premium monthly, as opposed to in an annual lump sum, you might save some interest. Customers usually pay an APR of around 18 per cent. Some insurers are better than others though, and APR’s can fluctuate between zero and 25 per cent.
Checklist
• You don’t have to get buildings or contents insurance with your mortgage lender and could save at lest 40 per cent if you shop around.
• You insure you house for the rebuilt costs, not what it’s worth.
• Check sheds, fences and garages are included in a buildings insurance policy.
• Tell you insurer about any extensions or they won’t be covered.
• Reduce your premiums by agreeing to pay a certain amount towards any claim that you make.
• Look out for subsidence by avoiding buying a house with trees close by.
• Keep your property in a good state of repair. If it’s been neglected the insurer might not cough up if it’s damaged or destroyed.
• Research any environmental problems in your prospective new postcode.
• Your contents are insured for what it would cost to replace them.
• Declare particularly valuable items to your insurer.
• Keep reviewing your contents insurance policy as you amass more possessions.
• If you take blanket cover, check your premium is not too high.
• Get security features such as a burglar alarm and good quality locks on your doors and windows and join a neighbourhood watch scheme to lower your contents insurance costs.
