There are 2 main types of home insurance and they are:
- Buildings insurance
- Contents insurance
In a previous article we looked at buildings insurance so in this article we will focus on contents insurance but before we begin:
What is home insurance?
Home insurance is a general term that is used to describe buildings & contents insurance. In a nutshell, homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people.
How it works is everyone in the same insurance class will pay annual insurance premiums given by the insurers. This figure can vary as some areas tend to have higher rates due to being situated in higher risk areas. For example, if you live in an area where storms or wild fires are more likely, you may have to pay more.
What is contents insurance and what does it cover?
Before we begin it’s worth mentioning that contents insurance is completely different to buildings insurance and they should not be mixed up at any time. Furthermore, as oppose to buildings insurance, a lender will never force you to take out contents insurance but you would be wise to to have it anyway.
Contents insurance is a policy that covers your personal belongings. An easy way to remind yourself of what this means is to simply remember the following quote ” If I moved house what would I take with me? ”.
Many people tend to neglect contents insurance but just think for a moment.
If I lost everything in my home due to a fire or flood would I be able to replace all of it? How much would it cost me in total?
This is where contents insurance would come in as your saving grace so at the very least as a homeowner you should consider it.
So what does contents insurance cover exactly?
As stated earlier contents insurance covers your belongings and this could include:
- Electrical goods (Laptops, consoles, TV’s, cameras)
- Furniture ( Drawers, beds, sofas)
- Furnishings (Rugs and curtains)
And much more – you get the idea. In general most insurers will cover your belongings against fire damage, floods/storms and theft. You will find that some policies offer extras but we will discuss these later in the article.
When taking out any kind of contents insurance most insurers offer two different types of policies and they are:
New for old
New for old basically means that if something were to happen to any of your personal belongings your insurer would replace that item for you with a like for like item.
For example if your 4 year old 40 inch television gets damaged your insurer should replace it with a like for like or very similar brand new 40 inch television.
Indemnity is a little different to new for old. You are still protected if something unexpected were to happen to your belongings but indemnity takes into account wear and tear on any items you claim for. Generally your insurer will only reimburse you with the value of the product at that time.
For example, if you have a 3 year old carpet that gets spoiled due to flooding, you will only get paid out for the amount the carpet is valued at in its current condition (before the flood) even if the carpet was initially very expensive.
Valuing your home: How much do I insure my contents for?
The Association of British Insurers has estimated that the average 3 bedroom family homes has around £55,000 worth of contents.
So, if your policy only covers £30,000 you are going to fall well short if something were to happen to your belongings.
It’s important you write down everything and not just the ‘more important’ stuff like jewellery and computers as everything adds up.
If you still find yourself struggling, Money Supermarket has a great tool which will help you calculate the value of your contents. Simply follow the online form and you will have a quote in no time.
As stated earlier a contents policy will generally protect your belongings again fire, flooding and theft but some extras might include:
- Accidental damage.
- Personal possessions cover – Covers items you take outside your home.
- Home emergency cover – Offers emergency assistance (e.g. if a pipe bursts in your home)
What doesn’t contents insurance cover?
There are some things that contents insurance does not pay out on so it is very important that prior to taking out any kind of policy you read the fine print thoroughly so you know and understand exactly what you are getting. Depending on your policy this could be:
- Self inflicted or accidental damage (unless you have it as an extra on your policy)
- General wear and tear.
- Computer damage caused by a virus.
- Item lost or damaged when they are outside your home (assuming you do not have personal possessions cover)
On a final note, having contents insurance could potentially save you a fortune if something unexpected were to happen to your property. Saying this, it’s important that you understand exactly what you are getting before you take out any kind of policy. It is essential that you do not blindly purchase a policy just because it is the cheapest. You need to make sure it caters for your needs and lifestyle just in case you ever need to use it.