For most people who buy a home, it’s the biggest single financial commitment they’ll make in their lives. And with the average price of a property currently around the £200,000 mark, there are plenty of homebuyers out there who have taken on a lot of debt.
What’s vital is that whether you have a mortgage, or are lucky enough to own your home outright, you financially protect yourself against damage occurring to the building. This is why it’s so crucial to get the amount you insure your property for correct.
How buildings insurance can help
Buildings insurance is usually sold in conjunction with contents insurance as part of a single home cover policy (although they can be bought as totally separate policies if required).
It’s there to financially protect you against any damage, loss or theft affecting the structure of your home. In most policies it includes outbuildings and external structures such as garden offices and walls, garages, greenhouses and sheds, as well as more permanent fixtures and fittings, such as windows, roofs, fitted kitchens and bathrooms.
Why buildings cover is so important
Don’t forget that if your property were totally destroyed in a fire or, as seen in the UK recently, by severe flooding, and you weren’t insured, or your claim was denied due to application errors, you could end up both with no home and a mortgage debt you were still legally required to pay.
Getting the ‘sum insured’ right
When you take out home cover, you’re asked how much you’d like the ‘sum insured’, or total cover, for your property to be.
The figure should be for how much it would cost to totally re-build your home from scratch, and not how much your property would be worth if you were to sell it.
The sum should essentially be for how much a builder would charge, plus all associated legal and architectural costs. Don’t forget it should also include external buildings and structures as well as internal permanent fixtures such as fitted kitchens and built-in wardrobes.
How best to estimate re-build costs
With a little effort it isn’t too difficult to estimate how much the total sum insured, or re-build cost, should be. You won’t then have to worry about being under-insured, or over-insured for that matter and paying over the odds for your cover.
However, get it seriously wrong and you could face major financial difficulties (see below).
Remember, it’s always better to be safe than sorry when it comes to buildings insurance; being over-insured is most definitely preferable to being under-insured.
How insurers view re-build costs
These days, many standard home insurance policies offer a maximum sum insured of £500,000 as standard.
Other insurers base the figure on the number of bedrooms, bathrooms, rooms in general and type of property (terraced, semi-detached, detached, large or small garden, outbuildings etc.).
There are still a good few who simply ask you to come up with a number.
Whatever the method the insurer uses, it’s your responsibility to decide whether the amount would be sufficient in the event of a claim.
There are a number of ways to go about doing checking, and what you shouldn’t do is simply pluck a figure out of the air:
- Ask a local builder – If you know a trustworthy local builder who doesn’t mind coming round to give you an estimate, then get them over. The builder probably won’t include professional fees such as those for solicitors and architects, so you’ll need to add these on.
- Employ a surveyor – If you don’t know any builders, or want a good second opinion, then you could employ a surveyor. The Royal Institute of Chartered Surveyors (RICS) will give you the name of a qualified local firm if you don’t know any.
- Free guides and info – RICS also provides a Building Costs Information Service, which many insurers and insurance brokers use to estimate re-build costs; the service includes a cost assessment calculator and gives free advice. Please note this is mainly for homes which are of a standard build however.
- Non-standard homes – If your home is unusual in that it might be a listed building, or has a thatched roof, or is a converted church, water mill or old barn, you have to be particularly careful when estimating the re-build costs. Materials and methods needed in construction might be considerably more than for standard properties.
Potential problems if you get it wrong
Of course, if you’re not insured at all, you could end up with nothing if your property burned to the ground.
However, this is usually only a question for those who own their own homes outright with no mortgage. For those with mortgages, buildings insurance is a legal obligation as part of the terms of the home loan.
Either way, if you’ve made errors of judgement when taking out your cover, you could still face trouble. There are two main potential areas of conflict with an insurer:
- It may be that you’ve under-insured your home and the sum insured will only cover perhaps half or three-quarters of the re-building costs.
- You might also inadvertently have not been completely accurate in stating previous insurance claims, who lives in the property, and the nature of the home’s structure and age. In an extreme scenario, an insurer might decide that they’ve been misled and not accept your claim for re-building costs.
If in doubt, it’s always best to check with your insurer or insurance broker. If you’re honest and up front you’ll soon correct any possible application errors or wrong estimates and be fully covered.