Many people believe that one home insurance policy is not all that different from the next, however, there can be significant differences between policies. The first step to ensuring you buy the right policy for your needs is to understand the various policies available. There are essentially two types of home insurance available – buildings insurance and contents insurance.

What is the difference between buildings insurance and contents insurance?

Buildings insurance covers the structure of your home as well as permanent fixtures and fittings such as kitchen cupboards, baths and toilets. Contents insurance covers belongings inside the home such as carpets, curtains, clothing and appliances. The easiest way to distinguish between the two is to picture yourself tipping your home upside down. All your belongings that fall out are covered by contents insurance and all that remains within your home is covered by building insurance. Another way of determining what is covered by contents insurance is to consider all the items you would take with you if you moved home. The main exception to both these concepts is the carpet, which is covered by contents insurance.

Do I need buildings insurance?

You will need buildings insurance if you own a property, either as an owner-occupier or a landlord. Most mortgage companies will not lend you money unless you commit to maintaining an up-to-date building insurance policy. When you take out a mortgage, many lenders will ask you to purchase their own home insurance policy, but don’t be under the mistaken belief that you are obliged to do so. Often these policies are from expensive high street lenders and by shopping around you may be able to match the cover at a better price. Half an hour on the Internet could save you hundreds of pounds. Select this link to find out more about switching your building insurance policy to a cheaper home insurer. In addition to protecting your property, building insurance offers personal protection against liability if you are sued for an accident that injures people or damages their property whilst on your premises. If you live in a flat or leasehold property your body corporate or management company should arrange building insurance on your behalf. We advise you to confirm this annually and request a copy of the building insurance policy to make sure you have adequate cover.

Do I need contents insurance?

Wherever you reside you will need to have adequate cover for your contents – that is all those items that you would take with you if you moved. Even if your building insurance policy is arranged by a third party, such as a landlord or your management company, you will not be insured for damage or loss to your contents. You may be in for a surprise if you tally up how much it would cost to replace everything in your home. It is easy to overlook the investment in your contents as you accumulate them slowly over time – a CD here, a new shirt there. If you suddenly had to replace all your contents overnight the cost could be crippling without contents insurance.

What is the difference between replacement cover and indemnity cover?

There are two types of contents insurance available – an indemnity policy or a replacement policy, also known as a ‘new for old’ policy. These two policies determine how you will be compensated if you make a claim. An indemnity policy will reimburse you for the value of the goods in the condition they were in when they were damaged or stolen. A replacement policy will replace your old item with a new item or its equivalent. The most popular and comprehensive policies are replacement policies. Our list of insurers all provide replacement policies. The difference between the two types of cover can be highlighted by the following example. If your 5 year old stereo is stolen and you have purchased an indemnity policy, the insurer will reimburse you for the value of the stereo in the condition it was in when it was stolen. Despite paying a lot of money for it at the time it may now only be worth £150. This may not provide you with enough money to purchase an equivalent new stereo. If you have purchased a replacement policy you will be provided with a new stereo that is the equivalent of the stereo that was stolen.

What is the difference between sum insured cover and bedroom rated cover?

The amount or level of cover that you are insured for can be calculated in 1 of 2 ways - bedroom rated or sum insured. This may apply for either building or contents insurance. With a bedroom rated policy the insurer calculates the level of cover based on the number of bedrooms in your home subject to a maximum level of cover. With a sum insured policy you are required to work out the precise level of cover you need and the insurer will use that information to calculate your premium. Regardless of the type of policy selected, you are responsible for ensuring the level is sufficient for your needs.

Do I need home emergency insurance?

A more recent addition to home insurance policies is home emergency insurance. This policy is usually offered at an extra premium and can be purchased as an add-on to your building or contents insurance. Home emergency insurance covers the repairs in an electrical, plumbing, drainage or heating emergency. This usually includes the cost of a tradesman and any parts that are required.

A standard home insurance policy won’t cover emergency tradesman costs, but will cover any resulting damage caused by the emergency. For instance, if your central heating system was leaking water over your carpet, your contents insurance would cover the damage to the carpet but would not cover the repair of the heating system or a tradesman’s call out charges. Home emergency insurance is a beneficial policy and helps minimise damage to the home. The policy will have maximum pay-out figures for call out costs, labour, parts and materials. Ensure you look closely at the level of cover as it can vary significantly between insurers.

Do I need legal expenses cover?

Another option to add to your home insurance policy is legal expenses cover. As with home emergency insurance there is an extra premium for this policy. Legal expenses cover provides you with legal advice and assistance to protect your legal rights relating to personal injury or accidental death, problems with consumer goods and services, unfair dismissal or other issues relating to employment contracts, and general disputes. You will need to read the policy document for exact terms and conditions. Most policies will offer access to a legal helpline and cover your legal expenses up to a fixed amount, usually £25,000 or £50,000 depending on your policy. Having determined what type of policy to buy, you will need to decide the amount of cover for your building and contents insurance.

Switching your home insurance policy from your mortgage provider