UK Home Insurance: A Brief Guide
Home insurance is not compulsory in the UK (as is the case with vehicle insurance) but it is nonetheless a very good idea to make sure that you are protected from the financial implications of damage to your home or the loss of your possessions.
The UK insurance market is very large and diversified with many non-traditional players (e.g. high street banks and supermarkets) entering the insurance field over the past decade or so. This means that competition between providers is fierce and that is therefore often possible to shop around for the best deals.
Before we look at the different types of home insurance, it might be worthwhile to just make a brief remark about home insurance and mortgages. When you take out a mortgage the lender will usually insist that you take out insurance on the property that you bought. They will furthermore strongly suggest that you take out cover through them, or their preferred providers.
Many homebuyers are left with the impression that they are only allowed to take out insurance through their lenders. This is not the case and homeowners have a legal right to choose their own providers. In many cases this would be the best thing to do since the premiums of insurance policies tied to mortgages are often not the best, or most cost effective, options available.
‘Home Insurance’ is actually an umbrella term for a series of ‘coverage areas’ that are usually combined into a single policy. The five most common coverage areas are:
Buildings: This is perhaps the most important part of the average home insurance policy as it covers the building itself (including its structure, exterior, roof, fixtures and outbuildings) against damage and/or loss. Most policies include cover against fire, floods, storms, thefts, subsidence and malicious damage.
Contents: Contents insurance (which is usually optional) covers non-permanent fixtures and fittings like carpets and curtains. Cover can also be arranged for personal property located at the insured property. The risks that are being covered are fire, floods, theft, subsidence, storms and malicious damage.
Personal Possessions: This coverage area differs from contents insurance in the sense that it covers the insured person against the loss of, or damage to, personal possessions that are taken off the property to be used elsewhere. The majority of claims in this area are for items like cameras, sporting equipment, musical instruments and jewellery.
Pedal Cycles: This is an optional part of most home insurance policies. Coverage in this area extends to the accidental loss, damage or theft of a bicycle.
Legal Protection: It is often the case that a home emergency is followed by legal action of some kind. Legal protection cover (another optional extra) can help with any possible legal costs arising from personal injury claims, employment disputes, property disputes and contract disputes.
It should be clear from the above that the market for home insurance is very flexible and that it should therefore be possible to ‘design’ a policy that can fit your exact circumstances and needs.
Summary:
- Home insurance is not compulsory in the UK but it is still highly recommended as a means to survive the potentially crushing financial costs associated with major emergencies.
- Many financial institutions offer insurance products linked to mortgages or other loans. Taking up these products is not compulsory and the consumer is free to shop around for the best price.
- Most UK Home Insurance policies offer buildings insurance as standard and then allow the consumer to choose from a range of optional extras.
- Some of the extras that can be added to home insurance policies include: contents insurance, personal possessions insurance, pedal cycle insurance and legal protection.
Saving Money on Home Insurance
The old truth that ‘every little bit helps’ is especially true when it comes to personal finance. Saving just a little bit of money every month can eventually make a significant difference to your overall financial position. One place where such a saving can be made is in the area of home insurance. Many people are paying way too much for home insurance without realising it. This article is intended as a brief guide to making sure that you are not one of them.
The main ways in which you can reduce your home insurance premiums are the following:
- Shop Around: This is probably the number one way in which people can reduce their premiums. It is unfortunately also the one that is often the least used. Many people erroneously think that researching alternatives would not be worth the hassle or that they are tied to their current insurer by their mortgage provider. Misconceptions like these can cost a great deal of money since it is often possible for consumers to substantially reduce their premium. The reasons for this being the case are varied. It often has to do with new provider bringing innovative products to the market or with the fact that some insurers do not bother to adjust the risk profile of their current clients. Be that as it may – The very first step towards lower insurance premiums for many would simply be to get some quotes from other insurers.
- Combine Policies: It can sometimes (although not necessarily always) be worth your while to combine your contents and buildings insurance (if you are a homeowner) into a single policy. This might create a kind of ‘economy of scale’ in the eyes of the insurer, possibly leading to a lower premium.
- ‘Reconfigure’ your current policy: An easy way to reduce your insurance premiums is to offer to pay a larger excess (the amount that you pay when making a claim). This means that the insurers cost per claim will be reduced in your case, leading to lower premiums. It goes without saying that you should do a proper risk analysis before taking this option since it could cost you dearly should you have occasion to actually make a claim.
- Reduce Risks: Risks assessments are one of the main ways with which insurers determine the level or premiums. If you can reduce risk, you are therefore likely to pay lower premiums. Some of the ways in which you can do this are:
- Improve Security: Fitting extra locks or an alarm system will almost always be look upon favourably by insurers.
- Flood proof your house: If you live in an area prone to flooding you can reduce your premium by installing water resilient doors, waxed floors and one way valves on drain pipes
- Improve Fire Security: You can do this by installing a sprinkler system or another fire extinguishing system.
Not everyone would be in position to do everything described in this article. However doing just some of them already qualifies as some of the ‘little bits’ that can make such a huge difference!
Summary
The four main ways in which you can reduce home insurance premiums are:
- Shopping around for the best deal
- Combining buildings and contents insurance
- Offering to pay a higher excess
- Reducing risks as far as possible
House Insurance explained
From a straightforward burglary to a building-related disaster, nearly every home is at risk from some form of upset or another. While an insurance company cannot repair the emotional damage of a fire or theft, it can provide someone with adequate financial compensation for what they have lost. A house insurance policy is therefore one of the first things many people arrange when they move into a new house or flat.
House insurance is available from every major UK insurance provider, plus a few smaller and more specialist firms. Even banks and supermarkets are now widely known to offer cover. Although typically a relatively inexpensive product, home cover quotes can vary widely from a few pounds per month upwards.
Cover comes in two forms - buildings insurance and contents insurance. Some people will need both while others will only need one type of protection. Buildings insurance protects the actual structure of the property from damage, be it through earthquake, flooding, or something like subsidence (Though note that subsidence cover is no longer always offered as standard and you may have to pay extra for this protection). Again, an insurance policy is not going to change the fact a home is knee deep in water, but it will provide cash to repair the damage. Generally speaking, buildings insurance will include kitchen and bathroom fittings, and other permanent fixtures - more on this later.
Contents insurance protects the general belongings kept inside the home. Here we are talking about regular personal property in the form of electrical appliances like televisions and computer consoles, furniture including sofas and tables, smaller items like books and CDs, kitchenware and appliances, jewellery and clothing. Pretty much anything you would take with you if you were to move house is normally covered by this type of product.
If you rent where you are living you will generally not need buildings insurance - if the property does not belong to you the landlord should have this in place with landlords insurance. You will however need contents insurance against the likes of burglary or fire. Likewise, if you’re a landlord who rents out a house which does not generally have any of your personal property in it, you’ll only need buildings insurance.
When comparing house insurance policies, the key is not to look only at the price but also at what is included. For example, insurers differ in what they class as being eligible for buildings insurance. Some firms will allow you to insure a garden shed as a matter of course, while others will not. Some policies will include protection for exterior walls and paved driveways, others will not.
Contents insurance has some similar differences between providers. Many will offer accidental damage, meaning a payout can be applied for if you drop or smash a valuable item like an mP3 player within the home. Some will even offer you cover for some items if you take them out of the house.
House insurance could be kept as low as possible by making sure the home is as secure as possible. Fitting alarms, superior door locks and other measures could help bring down the cost of a premium. Smoke alarms may also help. Another common trap people fall into is undertaking major DIY building work without first consulting their insurer. If they happen to damage the property’s structure, they may not be covered for this if they are not a qualified professional.