Home & Contents Insurance Explained

Thursday, November 20, 2008

One of the biggest problems with household insurance policies is under-insurance, with many people not having a clue about how much their possessions are worth. If you insure your contents for less than their true value, you're likely to get a reduced payout if you make a claim.

1. What's it worth?
Most insurance companies work out how much cover you need according to the number of bedrooms in the property. However, it's a fairly rough calculation, and it's well worth drawing up your own list and working out how much it would really cost to replace your possessions. You could well be surprised by the result. And don't forget to review the amount every year, even if your policy is index-linked.

2. Don't pay twice
With policies offering a range of extras, you could find you're paying twice to insure the same items. For example, if you opt for all-risks cover, you're unlikely to need to insure your baggage when you travel, as it will already be covered. Similarly, it's possible to insure an item such as a mobile phone through your contents policy (rather than buying a separate one). But be aware that some policies will only cover your phone if it's damaged in your home. So if you lose it while you're out, you may have to pay for a new one yourself.

3. Buildings or contents?
If you use different companies to insure your house and its contents, or if you live in a flat where there's one insurance policy for the whole building and individual policies for its contents, you may find some confusion over which company has insured what. A useful guide is if you're claiming for fittings that you could reasonably be expected to take with you if you were to move, it should be covered by your contents insurance. If not, it comes under your buildings policy.

4. Shop around
Not all insurance companies charge the same, so it's worth shopping around. If you bought your policy from your mortgage lender, you're probably paying up to 30% more than you need to. Your lender will usually charge you a fee (about £25) if you want to switch insurers, but that should be more than offset by the savings you make. Some insurers will pay this fee if you switch to them.

5. Not all policies are the same
Make sure you get one that suits you. A standard policy will insure you in the event of fire, theft, flood, etc, but won't cover you for everything. An all-risks policy will also include cover for accidental damage, or losing valuables while away from home.

6. New for Old
There are some more obscure policy clauses as well. For example, if your kitchen flooded and half the units had to be ripped out to get to the cause of the flood, you could have to pay for the cost of gutting the kitchen. If your policy includes a clause called 'seek and find', the insurers will pay. If you insure your contents on a new-for-old basis (otherwise called replacement as new), you'll be paid cash to enable you to replace your belongings, or get them repaired. Many policyholders are dismayed if their insurance company only offers to pay for a repair - but you don't have an automatic right to get everything replaced. If you've taken out an indemnity policy, your claim settlement will take account of wear and tear.

7. Adjusters and assessors
If you have a claim of any substantial size, your insurer is likely to send out a loss adjuster*. They are not independent, but are there to represent the insurance company's interests. A loss assessor* will represent your interests, dealing with the insurance company on your behalf. They are usually paid on a commission basis. The more money they recover, the more you pay them. Because they work on a commission basis, insurance companies tend to be dismissive of assessors' work, but if your claim is a reasonable size (at least £10,000), it may be worth contacting one.

8. Discounts
Around half the insurance companies offer a discount if you don't make a claim, often 10% after three claim-free years, rising to a maximum of 35% after five years, although you'll lose the lot if you make a claim. Many will also give you a discount if you've fitted deterrents, such as window locks and an alarm, although the locks have to meet the insurer's specifications, and your policy may specify when your alarm has to be switched on. If you're aged 50 or over, you'll also qualify for a discount on your policy. There are specialist policies aimed at older people, but most companies will give you this reduction.

9. Working from home
If you're working from home, you must tell the insurance company. It is possible to insure your computer or fax with an ordinary home contents policy, either free of charge or for a small premium. But be aware that if your computer is insured for business use through a household policy, you'll only be paid for loss or damage to the computer, not for any knock-on effects that may affect your work. If you need more comprehensive insurance, you should contact a specialist company.

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