Home insurance ensures your most valuable asset is protected, as well as the possessions you keep inside. Good cover is essential, but it needn't be expensive.
Why do I need home insurance?
If you own your home, it's probably your most valuable asset, and even if you don’t own it, it is likely to contain some of your most valuable assets. So, what would happen if your house was flooded, burned down, subsided, or was struck by a car, lightning, or a falling tree? Well, there's every chance your house will need repairs, and you'll need to replace damaged items, both of which can be very expensive.
Whether or not you have to incur that expense yourself depends on the damage, your property's age* and whether you have adequate home insurance.
Good cover can mean the difference between a relatively smooth path back to normality, or an uphill grind as you slowly acquire the funds needed to repair and replace all that has been damaged.
*New homes (under ten years old) built by developers registered with the National House Building Council are covered by its building warranty. Obviously, this won't cover you against fire, flooding or other natural disasters.
What cover can I get?
Home insurance has developed so that some policies now include cover for numerous items/scenarios not traditionally covered. However, most home insurance policies are either one, or both of two main insurance types.
Buildings cover protects the structure and permanent fixtures (the bits you'd leave when selling your house) from damage, including:
Buildings cover is often capped at a set total for the work. However, people tend to overestimate the cover they need for buildings, as they associate it with the value of the property.
Property prices are partly a function of the build costs involved, but there are also a host of other factors that influence them, like scarcity (not enough housing stock), proximity to schools/leisure locations, and the area’s general desirability.
Contents cover protects the possessions you keep in your house (and in your garden, depending on your policy).
Of course, how much cover you get, and what possessions are protected, will depend on the specifics of your cover. The more you pay, the more is likely to be covered and better the protection will be (if insurers are paying out more, they need to charge more).
Contents insurance does not usually cover you for wear and tear of possessions, but some policies will offer a new for old replacement of damaged/stolen items.
Something to note, if you have precious items, they will not always be covered as part of a standard policy. Most insurers cap the amount of cover per single item. If you have possessions that will cost more than the cap, you will need to detail these separately and get specific cover for each item. You should also remember, unlike buildings cover, where repairs tend to cost less than the value of the property, with contents cover, you are insuring items for the cost of replacing them - not their current value.
For example, you might have a ring or an expensive watch, that is 'worth' £2,500 because it could only be sold second hand. However, to replace the item (for which you might not even find a like-for-like replacement), you will need to buy from a retailer. New goods carry a premium, which you should account for to ensure you are not underinsured for a monetarily or sentimentally valuable item.
What cover do I need?
In an ideal world, we would all get the cover we need to repair or replace everything we own. However, insurance isn't cheap, so you'll need to balance the risk you are willing to take, against the cost of the insurance. If you assume more risk yourself, your policy will be cheaper. Whether or not this means you'll save money will depend on what happens in the future.
As a general rule, you should always get more cover than you think you need. It's always better to be overinsured, relative to your appetite for risk, than underinsured.