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Buildings and contents insurance
Insurance The best protection
Big savings are on the cards if you shop around for buildings and contents
insurance, both from the outset and when renewing a policy, says Olly Morrison
When taking out a mortgage, lenders will insist you get
buildings insurance, which
covers the cost of rebuilding or repairing your home. Without it a fire, flood
or such like could leave you homeless. But this doesn’t mean you don’t have to
get it with your bank or building society. This may be the easiest way to cover
your home, but huge savings are on the cards if you take the trouble of shopping
around. The average cost of buildings cover is £209 a year. Shopping around can
slash this to £132, claim the AA. The price comparison site
insuresupermarket.com goes further and estimates lender insurance can cost up to
twice as much as the cheapest standalone policy. “Homeowners are free to shop
around for the best policy available to them, yet a significant majority still
go with their lender’s insurance,” laments Richard Mason, director of
insuresupermarket.com. “Whether this is out of apathy, convenience or a lack of
awareness is not clear; regardless, a great number of homeowners could almost
certainly be getting a better deal."
He adds that it’s just as important to wear out the boot laces when renewing a
policy, which homeowners have to do every year. “It is all too common for people
to renew with their existing provider rather than shop around – either because
they have forgotten, or worse still, they think that it is a condition of the
mortgage,” he
says. “I can guarantee that in most circumstances, it is not the case – rather,
insurers are relying on inertia to keep the customer and most likely this is
when they start to raise prices. Consumers need to start flexing their buying
muscle and get the product that best meets their needs rather than buying
everything from one place; then we will truly start to see a competitive
marketplace." To reduce costs further you could try agreeing to a bigger excess
- an amount you pay towards the cost of a claim you make. Paying in one single
yearly payment also tends to be around five per cent cheaper than paying
monthly.
HOW MUCH
Wherever you get it from, a host of factors affect the price of your premium.
The biggest is the environment. Many post codes in flood and subsidence-blighted
areas are uninsurable, so it’s well worth checking beforehand. You can do this
at websites such as www.environment-agency.gov.uk and www.upmystreet.com. It
might be worth having a proper survey carried out or simply talking to your
prospective new neighbours. Subsidence tends to be a bigger problem in the South
East. Postcodes in the Severn Valley are at greater risk from flooding, while
many properties in East Anglia are uninsurable due to the problems with coastal
erosion. Building and labour costs are higher in London so premiums are higher
here. The age and type of house you have will play a part as do environmental
factors. Whether your cover is sum-insured, where you have to work out how much
it would cost to rebuild the home, or bedroom-rated, where you simply tell your
insurer how many bedrooms you have, will also come into play.
INS AND OUTS
You don’t know how good a policy is until you claim on it. It’s important to
check exactly what you are and what are not covered for. A policy will usually
cover damage or ruin to greenhouses, garden sheds and accidental damage. But it
won’t necessarily include damage to boundary walls, fences, gates, paths, drives
and swimming pools. Neither are you covered if your home is blighted by frost,
damp and dry rot. You can arrange extensions for a policy but the price will
rise. Buildings insurance will also cover for damage to permanent fitted
fixtures such as baths, fitted kitchens and toilets, inside your home. You’ll
need to tell your insurer about extensions, such as a conservatory, to insure
these will be covered.
CONTENTS INSURANCE
Unless you’ve taken a combined policy, you might go on to insure the contents of
your new home. It is not mandatory to insure your possessions and one in four,
or six million homeowners, don’t bother. Maybe they are put off by the extra
expense. The Association of British Insurers says it sets back the average
policy holder typically £120 a year. But that figure doubles with accidental
damage cover (most possessions are ruined or destroyed by accident). Again,
Richard Mason complains there’s no excuse for homeowners to be without contents
insurance. "People prioritise their buildings cover over their contents because
the cost of re-building a property is so high and because most
mortgage
providers insist on it,” he says. “The reality is however, you are much more
likely to be broken into then to have your house burn down." The average value
of a home’s contents, meanwhile, is between £30-40,000
so if a pipe bursts, you get burgled or you have a fire, the cost of replacing
internal furnishings and electrics is likely to be huge. Mason claims adding
basic contents cover to a building insurance policy can cost less than £34 a
year – equivalent to around £0.09 a day, and only £21 extra a year with
accidental damage. You can slash the cost of contents by as much as 40 per cent
cover by removing added extras such as legal cover, personal belongings cover
and home emergency cover - all of which can bring premiums down by 40 per cent
so is very beneficial to have. "Even for lower income households the majority of
people have a set of basic contents like TV, stereo, DVD, and camera that would
cost a lot to replace, not to mention the cost of the actual break-in damage,”
continues Mason. “Removing extras such as legal cover, freezer cover and
personal possessions can significantly reduce your premiums leaving you with a
good basic cover in the event that the worst does happen."
Just like with buildings policies, you may be surprised at what’s not covered in
your contents insurance. Policies won’t often cover the belongings you use
outside the home. These can be particularly valuable possessions such as
jewellery, laptops, iPods and mobiles. There is also often a single-item limit
of £1,000 and an overall limit of £10,000 for all your valuables. Limits,
though, can be increased in return for higher premiums. Again, while you can do
all you can to them down to the minimum, premiums fluctuate. The biggest factors
determining the price of contents insurance, are the security and location of
your property. You could pay a higher premium, for instance, for an inner-city
house more at risk from burglars. In some crime hotspots such as Brixton in
South London it is impossible to insure your effects. Costs are higher for
younger people, too, as they are deemed by insurers to go out more. Your
occupation is also important. Entertainers pay over the odds, for instance,
because they are often away from home. And anyone prone to leaving large amounts
of cash or valuables in the home, such as market traders and antique dealers,
will also tough out higher premiums.
WATCH OUT!
Beware that there’s often a fine line between what’s classed under contents or
buildings insurance (Curtains and carpets are fitted but can also be removed,
for example). Also watch out you don’t under insure your possessions. A recent
study from M&S Money warned that 92 per cent of us undervalue our home contents
by a third, while the remaining eight per cent over value them. Malcolm Tarling
from the Association of British Insurers warns us: “Insuring your possessions
for the right amount is vital. Many people are likely to under estimate the
value of the contents in their home - with potentially serious consequences if
they need to claim.” He recommends going from room to room totting up how much
it would cost to replace possessions if stolen or damaged. “It is important to
do so to ensure that you do not face any nasty surprises if you do need to
claim.” Also always read the small print. Policy holders often discover when
making a claim for lost, stolen or damaged valuable possessions that they will
receive vouchers to replace them - not cash or an exact replacement.
SWITCH
If you’re unhappy with your deal you can switch insurers if you wish without
being penalised. Unless you’ve made a claim previously you’ll get the rest of
your money back, minus the odd administration charge. You might save a few
pennies by switching. If you’re paying for your premium monthly, as opposed to
in an annual lump sum, you might save some interest. Customers usually pay an
APR of around 18 per cent. Some insurers are better than others, though, and
APR’s can fluctuate between 15 and 25 per cent. With some providers, there’s no
added charge for monthly payments and even if the total premium is higher, you
could end up paying less.
Checklist
you don’t have to get or renew buildings or contents insurance with your
mortgage lender and could save at least 40 per cent if you shop around you
insure your house for the rebuild costs, not what it’s worth check sheds, fences
and garages are included in a buildings insurance policy tell your insurer about
any extensions or they won’t be covered reduce your premiums by agreeing to pay
a certain amount towards any claim that you make look out for subsidence by
avoiding buying a house with trees close by keep your property in a good state
of repair. If it’s been neglected the insurer might not cough up if it’s damaged
or destroyed research any environmental problems in your prospective new
postcode check your contents are insured for what it would cost to replace them
declare particularly valuable items to your insurer keep reviewing your contents
insurance policy as you amass more possessions if you take blanket cover, check
your premium is not too high get security features such as a burglar alarm and
good quality locks on your doors and windows and join a neighbourhood watch
scheme to lower your contents
insurance
costs
Top tips to to cut premiums:
• Strip out added extras
• Dont take new for old
• Consider paying annually as some insurers charge up to 30 per cent APR to pay
monthly
• Consider whether you need accidental damage
• Make sure you’ve fitted a smoke alarm
• Check and secure existing fittings to avoid accidents
• Make repairs that have been overdue, especially to security features such as
locks, windows and external gates. Install an alarm (this could save you 10 per
cent)
• Increasing voluntary excess could save you a further 10 per cent
• In the garden, consider planting thorny shrubs at the boundary of your
property
• Keep outbuildings locked when not in use: theft from garages and garden sheds
is one of the fastest growing crimes in the country
• Ensure that you revise your cover after any big DIY improvements - for example
a new kitchen or bathroom - as these may increase the sum insured
• Think very carefully before making a claim, especially if the damage is only
minor. The excess payment and the potential increase in premiums may mean it is
better to pay for smaller repairs yourself source: insuresupermarket.com
This article has appeared in Mortgage Magazine which is available in all good
newsagents. Copyright MSM International Ltd
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