Home insurance 101: What is it and why do you need it?
If you’re buying or renting a home, you’ll likely encounter home insurance. Find out what it is and why you need it.
If you have never needed to worry about home insurance, you might not understand what it is and why it’s important. In this guide, we’ll break everything down for you to help you understand all there is to know about homeowners insurance.
The topics/questions we’ll cover include:
- What is home insurance?
- What does home insurance cover?
- What doesn’t home insurance cover?
- Why get home insurance?
- Does everyone need home insurance?
- How to find the best home insurance policies
What is home insurance?
Sometimes referred to as homeowners insurance, this is an insurance policy that relates to your home. In simple terms, home insurance will protect your property and possessions against damage or theft.
If your property gets broken into – and some of your valuables are taken – you can make a claim against your policy to gain compensation for your losses. The exact amount you can claim depends on the provider, but you get the gist of what home insurance is.
Now, here’s where things get slightly confusing as there are many types of insurance that fall under the home insurance bracket. Here are the most common types you’ll encounter:
- Buildings insurance – This deals with the structure of your home and any permanent fixtures within it. It can also include exterior structures, like a garage or shed. In essence, it protects you against structural damages to your home.
- Contents insurance – Here, we’re looking at everything inside your home that you own. This insurance covers you if your belongings are damaged or stolen.
- Tenants’ insurance – Those of you renting homes will probably need tenants’ insurance. It’s basically the same as contents insurance, but with more security.
- High-value home insurance – A special type of home insurance for houses that would cost more than £500,000 to rebuild. Also includes contents insurance for high-priced belongings, like fine art.
There are other types of home insurance as well, but these are the main ones you will concern yourself with. At least, this is what we’ll focus on throughout the rest of the guide.
What does home insurance cover?
Obviously, it depends on your insurance policy and the type of home insurance you’re getting. Primarily, homeowners are going to get both buildings and contents insurance. If you rent, you just need tenants’ insurance in most cases, as your landlord should have buildings insurance in place anyway.
What does buildings insurance cover?
As mentioned earlier, it covers the general structure of your home and the permanent fixtures within. This can include kitchen cabinets, bathroom fittings, and so on. With this policy in place, you will be protected against things such as storms, falling trees, burst pipes, fire damage, flooding, and so on.
Effectively, if your home suffers any type of interior or exterior physical damage, you can use your buildings insurance to cover the cost of repairs or rebuilds.
What does contents insurance cover?
On the other hand, contents insurance covers you against both damages or theft of the items belonging to you inside your home. This includes jewellery, TVs, computers, games consoles, laptops, iPads, and so on. You’ll be amazed at how much everything is worth when you add it all up.
Make sure you make an accurate calculation when getting contents insurance as you have to state how much your contents are worth. Naturally, the less valuable your belongings, the cheaper your insurance will be.
However, don’t take this to mean you should instantly put a low value to get cheaper insurance. No, you need to put the correct value as your insurance will only cover you up to this amount. Thus, you ensure that your provider will pay out as much as you need if anything happens.
What doesn’t home insurance cover?
As you’ve seen above, home insurance typically covers you against theft, property damage, bad weather, and so on. But, what won’t it cover?
- Accidental damage – As standard, home insurance policies very rarely cover accidental damage to your property or contents. So, if your kids are playing football in the garden and they smash a window, you’re not covered. Likewise, if you spill coffee on your laptop, your home insurance won’t cover it. You will need to add accidental damage as an optional extra, which almost all home insurance policies let you do.
- General wear and tear – Again, it is extremely rare that home insurance covers things like the general wear and tear of a property. So, an old roof developing a leak won’t necessarily be covered because it just happened as a result of it being old. Similarly, appliances that break down because they are old will not be covered. There are ways to get protection for general wear and tear, with a home warranty being one of them. Speaking of which, general warranties or separate insurance for appliances can also cover wear and tear.
- Pet damage – Has your pet dog torn up your carpet or ruined the sofa? Unfortunately, home insurance is unlikely to cover this, probably because it’s such a common occurrence. If they did cover it, insurance providers would be paying out every single day.
- Theft when you’re out – If you are out of your house and your engagement ring or smartphone gets stolen from you (not from your home) then your home insurance isn’t going to cover it. You might be able to add an extra to your policy that covers this, but it depends on the provider.
- Unoccupied properties – Planning on spending more than 30 days away from your home? If a house is left unoccupied for this long, your insurance provider is entitled to restrict the coverage it provides you. Unoccupied homes present greater risks than occupied ones, particularly in the theft department. If you are away from your home for a really long time, you might need unoccupied home insurance instead of a standard policy.
- Acts of war or terrorism – Unlikely to be something that affects most of us, but any property damage caused by acts of war or terrorism will not be covered under any home insurance policy.
Why get home insurance?
It can be a costly thing to purchase, so a lot of people wonder if it’s even necessary. Especially if you are renting a home, given that the landlord is the property owner. Therefore, they should already have some form of home insurance in place, so why should you bother?
Simply put, home insurance protects you against unexpected things that can make you lose a lot of money. As a homeowner, you might be faced with extortionate repair bills if a storm damages your property. Or, what if someone breaks into your house and steals your valuable belongings? It can cost tens of thousands to replace everything they took!
Home insurance gives you a financial safety net if you need it. In both of the cases above, you can make a claim and get the compensation you need to pay for repairs or replace your stolen items with new ones. When you think about it like that, the cost of home insurance is greatly outweighed by the potential benefits when unforeseen circumstances arise.
Does everyone need home insurance?
Well, this is where things get interesting as home insurance isn’t technically essential. If you think about car insurance, it is a legal requirement to insure your car if you want to drive it on public roads. With home insurance, it’s not illegal if you don’t have a policy.
However, and this is why it’s interesting, you will almost always need to have insurance if you buy a home via a mortgage. Lenders put it as an essential requirement as they want to know that the property they’re helping you buy will remain in good condition. They also want to be sure that you can continue to pay your mortgage if your home gets damaged, which is where insurance will help.
For renters, home insurance can often be optional. It depends on what your landlord states, though most leave the decision up to you. As we’ve alluded to a couple of times, you only need contents insurance in most situations. You’re not responsible for the structure of the building, so you only need to protect your belongings.
How to find the best home insurance policies
Some home insurance policies are considerably better than others, providing lots of coverage at excellent prices. The best way to get a good deal is to compare the market. There are loads of price comparison websites you can choose from to look at all the individual home insurance providers, finding the cheapest quote for the coverage you need.
On that note, you have reached the end of this guide to home insurance. It’s something you’ll encounter at some point in life, so it helps to learn as much about it as possible. You now know the different types of home insurance, what’s covered, what isn’t covered, and much more.
Photo by Bertrand Bouchez