What are the two types of home insurance?

Many kinds of insurance are optional, but most homeowners consider that having home and contents insurance is a must even though it isn’t a legal requirement.

In fact, although it isn’t required by law many homeowners are contractually obliged to take out a basic home insurance policy if they have a mortgage, because insurance for the building will often be required as part of the loan agreement.

Home insurance in the UK normally includes two separate policies; one of which covers the building itself and the other which covers the contents. Homeowners could choose to buy both from the same provider, but may also buy the policies separately from different providers.

Buildings insurance

Buildings insurance protects the structure of your home as well as any permanent fixtures and fittings. Covering everything from your fitted wardrobes to your windows and your roof. Outbuildings such as garden sheds and garages are included. However other outside fixtures such as fences, driveways, and gates are not covered by all policies.

Contents insurance

Contents insurance protects your belongings including your household items, money and valuables.

Special coverage and optional extras

Optional coverage includes accidental damage, legal advice, identity theft cover and home emergency cover.

What does a home insurance policy cover?

While basic policies can vary, most cover damage and loss that occurs due to the following causes:

• Fire, lighting, earthquake, explosion
• Subsidence, landslip, or heave
• Storms and floods
• Malicious damage
• Theft of property, or damage caused by attempted theft
• Leaking water tanks and pipes
• Oil leaks from heating systems
• Failing trees or tree branches
• Breakage of TV, radio, or satellite receivers
• Impact from an aircraft, vehicle, or animal
• Riot

For most policies, exclusions are things such as general wear and tear, costs of home maintenance, and damage or breakdown that occurs as a result of poor workmanship. Most policies also cover a certain amount of personal liability. For example, if someone is injured while in the home and the homeowner is found to be legally responsible, insurance may cover some or all of the compensation and legal costs.

How to compare home insurance policies?

Making home insurance comparisons might be easier online, but it’s still important to be thorough when shopping for insurance. It might not be as simple as to buy the home insurance that’s the cheapest, it could be wise to check the level and type of cover of each policy as well.

Looking closely at what’s covered in the policy, and not making any assumptions about what’s covered as standard could be a wise step. For example, few policies cover damage caused in the home by the homeowner, or cover loss or damage to personal items that are taken out of the home. And if the home is let to tenants or stands empty, coverage may be restricted.

Another difference is new-for-old versus indemnity cover. With new-for-old, the policy covers the replacement cost of possessions and the cost of building a new home. With indemnity cover, depreciation is factored into payouts. Indemnity policies are cheaper but don’t provide the same level of protection as new-for-old cover.

How much insurance does a homeowner need?

The amount a homeowner is insured for is the maximum amount their insurance provider might pay out if the home and its contents are completely destroyed by an event that is covered by the policy. So the primary concern for the homeowner could be to make sure that this sum might actually cover the costs of rebuilding the home, and of replacing all of their possessions with new items. This is the main reason why new-for-old is usually superior to indemnity insurance in terms of the level of coverage it provides.

Note that some insurance providers offer a different kind of policy with levels of insurance, rather than basing the insured sum on a valuation or appraisal. This is also known as bedroom-rated cover, because the coverage level is typically determined by the size of the house, using the number of bedrooms it has as a guide. For example, a policy might automatically provide a maximum cover of £500,000 for the home and £50,000 for the contents. In this case, as with other kinds of home insurance, it’s still likely to be the homeowner’s responsibility to ensure that the policy limit is high enough to cover the cost of rebuilding and replacing.

For any given policy, there is typically a limit that applies to valuable items such as jewelry, art, and ornaments, and sometimes electronic equipment. If a homeowner’s standard policy doesn’t cover the value of their valuables, they may need to purchase extra insurance to make sure they’re fully protected.

FAQ: All your home insurance questions answered

All information is intended for editorial purposes only and is not intended as a recommendation or financial advice.