Buildings vs contents insurance

Buildings and contents cover two different things, and mixing them up is expensive in both directions. Buildings insurance protects the structure you would have to rebuild. Contents insurance protects the things you would carry out the front door. Owners with a mortgage usually have to keep buildings cover in place.

What buildings cover pays for

Buildings insurance covers the permanent structure: walls, roof, floors, ceilings, foundations, and fixtures that would stay if you unscrewed everything movable. Kitchen units, bathroom suites, built-in wardrobes, internal doors and the boiler usually belong to the building. Outside, it typically extends to drives, paths and boundary walls, though cover for outbuildings varies and anything unusual such as a large garage may need naming on the policy.

The events it responds to include fire, storm, flood, escape of water, subsidence and impact by a vehicle. Escape of water is one of the most common claims, and also the one where a slow drip over months gets refused for lack of maintenance. If you are a leaseholder, check what the freeholder's policy covers before buying your own, because paying twice for the same walls is a waste.

• Structure - Walls, roof, floors, chimney and permanent fixtures.
• Subsidence - Usually included in buildings cover, but the excess is high.

What contents cover pays for

The easy test is this: if you turned the house upside down, contents cover is everything that falls out. Furniture, televisions, computers, clothing, bedding, kitchen equipment, tools and the contents of the freezer all sit here. Carpets and curtains are usually treated as contents, which surprises people who assumed they came with the building. Expensive portable items such as jewellery, cameras or a bicycle usually have a single item limit.

Contents policies also cover items temporarily away from home, again with a cap. A laptop left in a car, a ring in a hotel or a bike locked in a town centre are all claims people assume are covered and then discover are not. If you rent, you generally need contents cover only, though the tenancy agreement may make you responsible for some repairs.

• Movables - Furniture, electronics, clothes and appliances that are not built in.
• Away from home - Often covered up to a modest limit that may not reflect what you carry.

Rebuild cost is not market value

The figure your buildings policy needs is the cost of demolishing what is there and building it again, not what the house would sell for. Market value includes the land, and in expensive areas the land can be most of the price. Insuring for market value means paying too much in premiums, while insuring for a low guess leaves a shortfall after a total loss.

Rebuild cost depends on size, materials, age and access. Period properties with stone walls, slate roofs and lath and plaster ceilings cost more to reinstate than their floor area suggests, and narrow access that keeps a lorry off the site adds to the bill. Rebuild cost calculators exist for this reason and take a few minutes with a tape measure and the original build year. Recheck after any extension or conversion.

• Rebuild cost - Demolition, materials, labour, professional fees and site clearance.
• Market value - Rebuild cost plus the value of the land. Never use this on a policy.

Why underinsuring shrinks a payout

Most policies contain an average clause. If you insure for two thirds of the correct rebuild cost and then claim for partial damage, the insurer can settle two thirds of that loss. You do not simply lose cover above the declared level; every claim is reduced in proportion. The same principle applies to contents, where a figure set years ago meets replacement costs that have risen since.

The clause exists because insurers price risk on the declared value, so getting the number right is the single most useful thing you can do to protect a claim. Replacement cost on contents means the price of buying the item new, not what you paid for it or what it would fetch second hand. An old sofa is valued at the cost of a comparable new one.

• Average clause - Proportional reduction of any claim where the sum insured is too low.
• Index linking - Many policies raise the sum insured yearly. Check it tracks real costs.

Excesses, exclusions and the small print

The excess is what you pay towards a claim, and a low one costs more in premium than it saves. Subsidence and escape of water usually carry much higher excesses than fire or theft. Accidental damage is often an optional add-on, and without it, a paint pot knocked onto a carpet is simply not covered. Flood cover frequently has its own terms and its own excess.

The conditions matter more than the headline price. Many policies cut cover if the home is unoccupied for more than a set number of days, which catches people who travel for long periods. Others require the heating to be maintained or the property kept in good repair. Declaring a home business, a lodger or a past flood claim is essential, since a claim refused for non-disclosure is worse than a higher premium. A video walkthrough of each room makes any later claim far easier.

• Unoccupancy - Cover often changes after 30 or 60 days empty. Tell the insurer before travelling.
• Non-disclosure - Declare claims, flood history and business use, or a claim may be refused.