Difference between buildings and contents insurance
In order to distinguish between what is
covered by buildings insurance, and what is covered by contents
insurance, think of contents as being the items you would take with
you if you moved home.
The exception to this rule is fitted carpets
which, although fixed, come under contents insurance.
So your furniture, TVs, electronic gadgetry,
kitchen equipment and clothing are covered under your home contents
policy, but your fitted kitchen and bathroom suite will be covered
by your buildings insurance policy.
New for old and indemnity cover
You can insure contents one of two
ways:
This means the insurance company pays the full
cost of repairing the item, or replaces it with a brand new
equivalent, if it cannot be repaired, is stolen or destroyed.
Sometimes, this will mean that the replacement
is superior to the old item (for instance where your PDA model is
no longer manufactured and you receive a newer model. That said,
not all items, such as clothing, can be insured on a new-for-old
basis.
The insurance company pays you in cash, but
makes a deduction for wear and tear, and depreciation.
The sum assured
Calculating the appropriate level of cover
involves nothing more sophisticated than going from room to room,
itemising everything and assigning a replacement value to each
item.
Some insurers make it easy for you by basing
the level of cover on the number of rooms in your home, or offer a
fixed amount of cover of, typically, £30,000-£50,000 for all your
belongings.
However, if you have items of high value (such
as jewellery, paintings and antique furniture) you could find
yourself under insured by this method. This could mean that your
claim would be scaled down proportionately, in the event of a
claim.
Most insurers will ask you to list individual
items above a certain value (typically £1,500) and an extra premium
will be charged for each item.
In any event, it is usually advisable to
compile a proper inventory. Once you have recorded the value of
your worldly goods on a spreadsheet, it should not be too difficult
to keep it up to date by entering new purchases, removing items
disposed of and updating valuations. It is also essential to keep
receipts, valuations and photographs of valuable items.
Remember to keep a backup, preferably outside
your home (for instance, in your office safe), just in case your
records are destroyed in a fire or flood.
Risks covered
The range of risks covered by a contents
policy are similar to those covered by buildings insurance, except
that they relate to moveable property within (and sometimes
outside) your home.
These are:
Fire, lightning, earthquake and explosion;
storm and flood; internal water damage from tanks and pipes; oil
damage from heating systems; theft and attempted theft; impact by
aircraft, aerial devices vehicles and animals; falling trees or
branches; riot and political disturbances, civil commotion and
strikes; legal liabilities.
You can extend the cover to specific items
that you take out of your home, such as sports equipment, clothing,
laptop computers, cameras and jewellery, although you will have to
pay an additional premium and there is likely to be a cover limit
for each item.
You need to insure your possessions for their
full value, or risk the likelihood that the insurance company will
scale down your claim proportionately. After all, it is not
reasonable to expect the insurer to carry the full risk if your
premium only covers a proportion of the risk.
Excess and exclusions
The insurance company will require you to meet
part of your losses, which is called the policy ‘excess,’ so the
higher the excess, the lower the premium.
Because of the nature of the risks to moveable
property, the insurance company will require you to exercise care
in the protection of your possessions, and may refuse to pay or
reduce its payout where:
- there is no evidence of forced entry to your
property;
- losses arise out of sub-letting;
- losses arise where the premises are left unoccupied for
longer than a pre agreed period of time (typically 30 consecutive
days).
- you fail to lock up valuables securely. Remember the case
of Sharon Osbourne, whose £2m claim for stolen jewellery was turned
down because the items were not secured in a safe;
- there has been failure to take reasonable measures to prevent
your water pipes and central heating system from freezing up in
winter
Discounts
You can obtain discounts on the standard
premium by:
- installing a burglar alarm;
- joining a Neighbourhood Watch scheme;
- by being over a certain age (typically age 50);
- installing high quality locks and grilles on all windows
and ground level and basement doors;
- accepting a voluntary higher excess
- building up a no claims discount
Working from home
There are nearly 5m self employed people and
an increasing number of them work from home.
For these people, a standard contents policy
may not be sufficient to cover the risks associated with home
working.
For example, you may have office equipment
such as computers, laptops, faxed and photocopiers. Business data
that you hold on your computer or in your filing cabinet may be at
risk from a computer crash, fire, flood, theft and other
hazards.
You may store goods, samples and materials on
the premises, and if you are running business from home, you are
responsible for the physical welfare of clients and staff who enter
your premises.
Not only do you and your business face greater
risks than the normal householder, but your home insurer may take
the view that these additional (business) risks invalidate your
home contents policy (namely, the risks would not have arisen had
you not been running a business from home).
This is why it is essential to tell your
insurer if you work from home. A separate or add-on ‘home business’
insurance policy may be required. For more, read our Guide to
working from home.