All of us, at one time or another, have to deal with the issue of insurance – the payment of a sum of money against the risk of an unforeseen event occurring. At times the insurance policy you take is as a result of a statutory obligation to do such: such as when you buy a car. At other times you take out an insurance policy because you are worried about a future event occurring, and want to adequately provide for it: such as with a life insurance policy. On still other occasions you purchase an insurance policy as a conditioning to your borrowing money from a lender. In the minefield of home ownership, you’ll find that you will need to, or you may need to, consider all three of these situations.
Without a doubt the biggest home insurance policy you are going to need to take out is building insurance. Essentially, a building insurance policy is insurance against the cost of repairing (or, in a worst case scenario, rebuilding) your home should anything happen to it; such as a fire, storm damage, burst pipe due to frost, etc.
The first thing to note about building insurance is that it covers the cost of rebuilding your home. It is not, nor is intended to be, an insurance policy against the value of your home. In this regard, the cost of rebuilding your home means the costs of the materials and labor needed in order to reconstruct the damage done to your home.
The second thing to note about building insurance is that it is not a static amount. Each year you will need to look at your home and your building insurance policy is for and determine whether not that sums is still sufficient, when calculated against market costs of rebuilding your home, to do the job of rebuilding your home.
A third thing to pay very careful attention to in any building insurance policy is the exemptions clause – and we all know they’ll be one. In particular, due to the very nature of building insurance, i.e. that your are insurance against unforeseen circumstances such as floods and storms, you should be very weary indeed if you come across a force majure clause.
However, notwithstanding the comments above, it is very likely that a building insurance policy is going to be a condition to any lender lending you money. This is not the same as saying, however, that you need to take-out the building insurance policy suggested to you by your lender. You have the option to shop around and make sure you get a good deal. But, it is likely (and recommended) that you’ll need one.
Beside your building insurance, the next most common insurance policy you’re likely to see if the home contents insurance. As the name suggests, a home contents insurance policy insures you against the contents of your home being damaged, lost (in circumstances) or stolen.
Here, most mortgage lenders are unlikely to require you to take out a home contents insurance. Nevertheless, you’re likely going to need to consider this issue if you have any other form of borrowing as your other lenders are likely to require you to have home contents insurance – in case any of the items their money has paid for get damaged.
Unlike building insurance, home contents insurance works on the basis of a sum insured. When completing the insurance policy you’ll be asked to provide a breakdown of all the items in your house over a certain value, which will be insured. Calculated into your home contents insurance policy will not be the cost of replacing the item – after all, in certain circumstances, it'll be impossible to determine the sentimental value of items. Rather, calculation of a home contents insurance is determined by the risk of loss. So, if you live in a high crime report area, you’re likely to find that most insurance companies either don’t want to insure you, or will ask for such a high premium that it is impossible for you to justify the costs.
One area where home contents insurance and building insurance share common ground, however, is with the re-evaluation. When it comes to time to re-insure your home contents, it is essential that you remember the previous year’s worth of purchases before you resubmit the updated insurance policy form. All too often, this information gets forgotten and a gap between the real value of replacing items and the items themselves (some of which, over a certain value, will need to be declared) develops.
Aside from the two principal forms of insurance policies above, additional insurance policies can be purchased for almost any event. Popular among the secondary types of home insurance policies, however, are (i) emergency home insurance; and (ii) holiday home insurance.
Ostensibly emergency home insurance is a supplemental form of insurance to the building insurance mentioned above. It’s a policy that allows you to upgrade any work being done to your house to emergency status. For example, if the tap bursts on a Sunday, you don’t have to wait till Monday to call the plumber.
More and more of us in the UK are now purchasing holiday homes. Holiday home insurance is a policy that recognizes the fact that the property being insured is not our main residence, but one that we use for holiday purposes. As with a building insurance, you’re holiday home insurance needs to cost the cover of all repairs that may need to be done to your home as a result of an emergency situation.