One in four households fails to insure the contents of their homes because unlike buildings insurance on mortgaged properties, contents insurance is voluntary.
But this could well be a false economy. 2007 has seen a record number of claims for storm and flood damage and anyone who has suffered from flooding must be ruing the day they omitted to buy cover. UK insurers expect to pay out at least £3bn in household insurance claims as a result of flooding in 2007 and the eventual bill could be even higher.
But contents insurance also pays out for losses due to theft or burglary and, for an extra premium, you can buy cover for accidental damage and your possessions while outside the home.
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Difference between buildings and contents insurance
In order to distinguish between what is covered by a buildings insurance policy, and what is covered by a contents insurance policy, think of contents as being the items you would take with you if you moved home, the exception to this rule being` fitted carpets which, although fixed, come under contents policies.
This means that your furniture, TV, stereo equipment and clothing will all be covered under your home contents policy, but your fitted kitchen and bathroom suite will be covered by your buildings insurance policy.
New for old and indemnity cover
You can insure contents one of two ways:
This means the insurance company pays you the full cost of repairing the item, or replaces it with a brand new equivalent, if it cannot be repaired, is stolen or destroyed.
Sometimes, this will means that the replacement is superior to the old item (for instance where your PDA model is no longer manufactured and you receive an newer model. That said, not all items, such as clothing, can be insured on the new-for-old basis.
The insurance company pays you in cash, but makes a deduction for wear and tear, and depreciation.
The sum assured
Calculating the appropriate level of cover involves nothing more sophisticated than going from room to room, itemising everything and assigning a replacement value to each item. This can be a hassle, so some insurers make it easy for you by basing the level of cover on the number of rooms in your home, or offer standard cover of, say, £30,000-£50,000 for all your contents.
However, if you have items of high value (such as paintings and antique furniture) you may find yourself under insured by this method, which means that your claim could be scaled down proportionately, in the event of a claim.
Most insurers will ask you to list individual items above a certain value (typically £1,500) and an extra premium will be charged for each item.
In any event, it is usually best to compile a proper inventory. Once you have recorded the value of your worldly goods on a spreadsheet, it should not be too difficult to keep it up to date by entering new purchases, removing items disposed of and amending valuations. It is also a good idea to keep receipts, valuations and photographs of valuable items.
Remember to keep a backup, preferably outside your home (for instance, in your office safe), just in case your records themselves are destroyed in a fire or flood.
The range of risks covered by a contents policy are similar to those covered by buildings insurance, except that they relate to moveable property within (and sometimes outside) the home.
Fire, lightning, earthquake and explosion; storm and flood; internal water damage from tanks and pipes; oil damage from heating systems; theft and attempted theft; impact by aircraft, aerial devices vehicles and animals; falling trees or branches; riot and political disturbances, civil commotion and strikes; legal liabilities.
You can extend the cover to specific items that you take out of your home, such as sports equipment, clothing, laptop computers, cameras and jewellery, although you will have to pay an additional premium and there is likely to be a cover limit for each item.
You need to insure your possessions for their full value, or risk the likelihood that the insurance company will scale down your claim proportionately. After all, it is not reasonable to expect the insurer to carry the full risk if your premium only covers a proportion of the risk.
Excess and exclusions
The insurance company will require you to meet part of your losses, which is called the policy ‘excess,’ so the higher the excess, the lower the premium.
Because of the nature of the risks to moveable property, the insurance company will require you to exercise care in the protection of your possessions, and may refuse to pay or reduce its payout where:
- there is no forced entry to your property;
- losses arise out of sub-letting;
- losses arise where the premises are left unoccupied for longer than a pre agreed period of time (typically 30 consecutive days).
- you fail to lock up valuables securely. Remember the case of Sharon Osbourne, whose £2m claim for stolen jewellery was turned down because the items were not secured in a safe;
- there has been failure to take reasonable measures to prevent your water pipes and central heating system from freezing up in winter.
Prevention is better than claim
You can obtain discounts on your premiums by:
- installing a burglar alarm;
- joining a neighbourhood watch scheme;
- by being over a certain age (typically age 50);
- installing high quality locks and grilles on windows and ground level doors; and
- building up a no claims discount
Working from home
An increasing number of people work from home these days and a standard contents policy may not be sufficient to cover the risks associated with home working.
For example, you may have office equipment such as computers, laptops, faxed and photocopiers. Business data that you hold on your computer or in your filing cabinet may be at risk from a computer crash, fire, flood and other hazards.
You may store goods, samples and materials on the premises, and if you are running business from home, you are responsible for the physical welfare of clients and staff who enter your premises.
Not only do you and your business face greater risks than the normal householder, but your home insurer may take the view that these additional (business) risks invalidate your home contents policy (namely, the risks would not have arisen had you not been running a business from home).
In such cases, a separate or add-on ‘home business’ insurance policy is required.
Home business policies
These typically cover the following risks:
- office furniture
- portable equipment (laptops, mobiles, Blackberries)
- public and employer’s liability (not required if you are a sole trader)
- business interruption for loss of revenue/profit as a result of not being able to run your business as the result of some disaster, such as flooding.
Check that business insurance cover does not invalidate your home contents cover. The last thing that you want is for two insurers to argue, in the event of a claim, as to which one is liable for what losses.
For instance, without clear policy wording, a dispute could arise as to whether your stolen computer was a personal or business asset. The safest option is to add a business extension to your existing home insurance.
Last edited August 2007