Is Your Home Underinsured?

Is Your Home Underinsured?

It may astonish you to know that 20 per cent of households in the UK are under-insured.  Serious flooding in 2007 showed many households just do not have enough insurance to protect them.  One in five do not know how much their contents are worth: it has been reported that the average amount of ‘stuff’ in a UK household is worth £35,000, more than the average annual UK salary of £27,000.

The Association of British Insurers (ABI) published a useful guide to help you find out whether you are properly insured, and explaining everything you need to know when choosing a household contents policy.

WHAT IS HOME INSURANCE?  This is sometimes called household insurance, usually made up of two separate policies, Buildings and Contents.  

Insurance policies these days are reasonably easy to read and understand, but you should talk to your insurance broker, advisor or insurance company.  They will provide you with a summary of what is covered; it is also important to find out also what is not covered – limitations and exclusions.

WORKING OUT HOW MUCH TO INSURE YOUR HOME FOR – It is your responsibility to make sure the “sum insured” is enough to cover the cost of any disaster.  The sum insured is the maximum amount the insurance company will pay out if everything you own is totally destroyed by a flood or fire.  Some insurers deal with sums insured on a ‘notional’ basis:  this means they will calculate the sum insured and advise you.  For example, £50,000 for contents and £500,000 for buildings, but you still need to make sure this will be enough.

WHAT RISKS DOES HOME INSURANCE PROTECT YOU AGAINST?  Policies vary of course, but most of them cover loss or damage from – 

Fire, explosion, lightning or earthquake; subsidence, heave or landslip; storm and flood; theft or attempted theft; escape of water from tanks or pipes; falling trees or branches; breakage or collapse of television, radio signal or satellite apparatus; riot, civil commotion, strikes, labour or political disturbances; impact by aircraft, other serial devices, any vehicle or animal; escape of oil from heating systems.

If you have to move into temporary accommodation due to damage to your property, you are covered by both building and contents insurance for either a fixed amount or a percentage, (usually 20%), of the sum insured.

Accidental damage cover can include underground pipes or cables serving the building; breakage of fixed glass in windows (though this may be included as standard).  It can also cover unforeseeable occurrences, such as putting your foot through the ceiling when you are in the loft; damage to home-entertainment equipment – tv’s, audio, video – 

WHAT IS EXCLUDED?  Some items and risks are specifically excluded, and these would be explained in your policy.

A home insurance policy does not cover the upkeep of your property, nor is it a substitute for keeping your home well maintained and in a good state of repair.  Checking and clearing guttering, for example, or making sure water tanks and pipes are well insulated, can reduce the chances of needing to make a claim.

EXCESS is the amount you pay of any claim, with the insurance company paying the remainder.  Different excesses may be set for different claims – in some cases you may get a reduction in your premium. Do make sure you check your policy.  The bigger the excess, the bigger the discount! 

WHAT IS CONTENTS INSURANCE?  Just about everything you would take with you if you moved house, is covered: furniture, carpets, curtains, bedding, white goods, any other electrical equipment, personal possessions including jewellery, works of art.  Every policy has limits on how much you can claim, so it is most important you make sure you are covered for the full cost of replacement.  

WHAT IS COVERED?  Most policies cover the risks mentioned in the Home Insurance list, while they are in your home.  Contents insurance also protects you for any claims against you for accidental injury or damage to property as the occupier of your home in a personal capacity, or as the employer of domestic staff.

Most insurers limit the amount they will pay out for any valuable jewellery or works of art; high value goods such as electrical equipment should be listed separately, and you may be required to provide an up-to-date valuation for the most valuable.  In such cases, the insurer may often raise these limits.

EXTENSIONS – Paying to have more cover on your contents –

For an additional premium, you can extend your policy to provide wider cover, which could include loss of or damage to, food in a freezer; lost or stolen key replacement.

Accidental damage cover for all of the contents when in the home; loss or damage for personal possessions taken out of your home, though expensive items such as jewellery, sports equipment and cameras should be specified, particularly if they are likely to be stolen, such as laptops or bikes.

Legal expenses cover provides access to legal advice, and is sometimes offered as standard.  Some companies may provide identity theft cover, which provides financial compensation if someone steals your identity.  Home emergencies cover can also be added, to deal with an emergency such as boiler breakdown.   Most of these would be available at an extra premium, so it is important to ask  your advisor, broker or insurance company 

WHAT ARE THE COMMON EXCLUSIONS FOR CONTENTS INSURANCE?

If you leave your home for an extended period, usually 30 days in a row, you might not be covered for instance for damage from escape of water. You are also not covered for damage caused by a terrorist, using chemical, biological, radiological or nuclear means.  You should check with the insurance company what is covered and what is excluded, as not all companies are the same.

As new and indemnity policies. You can choose a policy for ‘as new’ or ‘new for old’, which means the insurer will pay the full cost of replacement.  However, if you choose an indemnity policy, it will reduce the amount the company pays out, and reflects wear and tear as well as depreciation.  For instance, your five year old television would not be replaced by a brand new one, you would be paid the current value of that five year old tv set.

WHAT IS BUILDINGS INSURANCE?   This provides cover not only for the structure, but also permanent fixtures and fittings, such as baths, toilets, fitted kitchens and bedroom cupboards, and interior decoration.  Most policies usually include garages, greenhouses, and garden sheds. However many do not cover boundary walls and fences, gates, paths and swimming pools. Always check your policy!  Most policies cover the list previously mentioned, and also some of your legal liabilities.  Someone could be hurt or their property damaged as a result of your property – such as tiles falling off a roof:  you would be legally responsible and might have to pay them compensation.

EXTENSIONS  – paying more to cover more  These are two of the most useful extras, for a higher premium: accidental damage to the building;  Legal expenses, SEE UNDER CONTENTS

ANY EXCLUSIONS FROM BUILDINGS INSURANCE?  As with the contents policy, if you are leaving your house unoccupied for more than 30 days in a row, escape of water.  Other common ones are war risks, damage to gates or fences caused by storms or floods. Similar to the exclusions mentioned under Contents. 

If you live in a flat or maisonette, it is recommended you insure it with others living in your block under a single policy. One of several advantages is to make sure you have the widest cover for the ‘common areas’ such as stairs, entrance hall, landings, doors.

Emergency repairs should be done as soon as possible to mitigate any damage.  Many policies cover the cost of temporary work, and most insurers provide emergency helplines to find someone competent to perform emergency repairs.

HOW DO I KNOW HOW MUCH TO INSURE MY HOME FOR?  It is extremely important to make sure the sum insured is correct.  A Buildings policy “sum insured” is the total cost of rebuilding your house.  There is no direct link between the sum insured and the market value of your house or its Council Tax band.  The ABI has a useful table, for you to calculate the rebuilding costs: http://abi.bcis.co.uk/.  

You could seek the advice of a surveyor:  this is essential if you live in a listed building, have a thatch roof, or any other unusual feature.  To find a qualified surveyor, use the link: www.ricsfirms.com . You will of course have to pay for the survey, but you could lose an awful lot more if you are under-insured.  The surveyor will take detailed measurements of your house and will use them together with other factors, to calculate the cost of rebuilding your house.

Keeping the sum insured up to date:  once you have the correct sum insured, many companies help to keep it that way by allowing for changing –usually upwards- rebuilding costs.  This is done by ‘index-linking’, which is done automatically.  Usually there is no charge for any increase from one renewal date to the next. However, do not rely on this method alone:  it is a good idea every few years to have a really good look at how much cover you have, and how relevant it is to your current requirements. You can ask your advisor, broker or insurance company for help with this. And of course, any improvements to the home, like installing central heating or building an extension, must be notified. 

HOW CAN I AVOID MAKING A CLAIM?

Insurance payments will not compensate you for any distress or inconvenience of losses, and things of sentimental value, or uniqueness, can never be replaced. Prevention is better than cure, when it comes to insurance. Following a few guidelines may help in keeping you and your property secure.

  1. SECURITY – fitting strong locks to doors and windows – and use them. The Home Office guide is helpful:

http://www.crimereduction.homeoffice.gov.uk/cpghs.htm

  1. WATER- insulate pipes and tanks.  Make sure your main water stop valve works easily.  Tell the family where it is and when to use it
  2. FLOODS – if you live in a flood area, follow the advice of the Environment Agency http://www.environment-agency.gov.uk/flood
  3. FIRE- install and regularly test, smoke alarms
  4. TREES- some types of soil, especially clay,  is subject to shrinkage due to drought. Large trees close to property, either yours, or your neighbours can significantly affect this, so professional help should be sought before planting or felling trees.
  5. ADVICE – please contact your insurance broker, advisor or insurance company if you need help with anything to do with your insurance policy
  6. A LEGAL CONTRACT – The policy is a contract between you and the insurance company, which imposes legal obligations on both of you.  The insurance company’s is to cover you against loss, damage or legal liability, as long as your policy is valid. Yours is to keep what you have insured in good repair, and to do all you reasonable can to prevent injury, loss or damage.

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