Division of Home Insurance
For the purpose of home insurance, your home is divided into buildings and contents. While buildings insurance covers the building’s fabric along with all permanent fixtures and built-in appliances, contents insurance covers your belongings – clothes, furniture, electrical items, etc.
Buildings insurance covers you against property damage caused by floods, fire, storms, subsidence, malicious damage/vandalism, falling trees/branches, and impact from vehicles, including objects that may fall from an aircraft. Contents insurance covers your belongings against flood, fire and earthquake damage, and vandalism.
If you own a home, it is wisest to take both types of cover. Some insurers give discounted rates for combined buildings and contents policies. For those living on rent, the buildings insurance is mostly covered by the landlord.
Assessing Property Value and How Much Insurance You Require
Before purchasing home insurance, the first step is to assess how much insurance you will need, which begins with knowing the actual value of your home. If your house is damaged, you must know what the associated repair/replacement costs will be.
To get the fairest and truest value for your home, it is best to contact an assessment company or experienced homebuilder. The better your coverage, lesser you need to pay from your pocket. The amount of coverage you purchase for your home, contents and personal property affects the price you pay.
Buildings Cover
While taking out buildings insurance, ensure that your home is covered for the rebuild value and not the market value. Rebuild value is not your property’s current market worth; it is what the entire reconstruction would cost.
Contents Cover
Note down the value of each item in your home, right from computers to clothes and from crockery to electronics.
Check if your insurance covers items like contents of your wallet/handbag, your garden, shed, storeroom, garage, etc. and the items therein. If you can include items that are damaged or stolen away from your home, it makes sense to pay extra for the same.
Valuables like antiques, jewellery, high-value electrical items, mobile phones, expensive technical gadgets, etc. may not be covered under your contents cover’s basic terms. Check with your insurer and take out separate cover, if needed.
Always get the new for old cover for your belongings, when you take contents insurance. This means the damaged/destroyed items will be replaced with identical new products, instead of getting the amount the old items were worth.
Calculate the right value of your belongings - undervaluing your contents will leave you underinsured, whereas overvaluation will increase the cost of your cover unnecessarily. Keep your inventory list in a fireproof safe (preferably not at home), along with your home insurance policy.
Actual Cash Value vs. Replacement Cost
Your home and belongings can be insured for either actual cash value or replacement cost. While actual cash value is how much you need for replacements/repairs to your home, after depreciation; replacement cost is the amount needed to replace/rebuild your home or repair damages with similar quality materials, without depreciation.
The Excess
Excess is the claim value below which the insurer will not pay. Most home insurance policies have a compulsory and voluntary excess. Paying a higher voluntary excess can lower the cost of the cover. However, in the event of a claim, you should be able to afford that excess.
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Unusual Property Insurance Cover
In case you happen to own an unusual property such as a renovated mill or listed building, or your home has an unusual feature like a thatched roof, you will need a specialist cover. The premiums for such unusual properties usually tend to be higher as it puts insurers at a greater risk. For example, thatched roofs are more susceptible to fire risks, while rebuild expenses for listed buildings are higher.
Discounts
Anything that improves the internal and external safety of your home can give you a discount on your premium. Certain things that help earn a discount are fire alarms; sprinklers; dead bolt locks; a home burglary alarm; updated wiring, electrical and heating systems; well-maintained and robust entrances, stairs, sidewalks, driveways, etc. (lowered chances of injury), etc. Similarly, having a home close to a fire and/or police department can also help you earn hefty discounts.
Deductibles
This is what you pay out of your pocket on each claim. It only applies to coverage on your home and personal property. When choosing a policy, ensure that you are comfortable paying the deductibles, in case you make a claim. Higher deductibles could come at a lower price.
No Claims Discount (NCD)
If you have not made any claim on home insurance for over one year, check with the insurer if you can avail the NCD, because this lowers your monthly premium considerably.
Annual Review of Home Insurance
Once a year, ask your home insurance agent to ensure your policy offers adequate coverage. Remodeling, addition of a new room, new insulation/wiring, etc. increase your home value and make up the replacement cost.
Read Your Policy
Last but not the least, your home insurance policy is an important legal document that must be thoroughly read and understood.
