If you own your own home the chances are that, along with the property’s contents, it’s your most valuable asset; or if you rent where you live this might be your possessions alone.
So it’s vital that you work out the right level of protection if your prized investment is to be insured correctly.
If you don’t get your sums right it could be disastrous. Under-estimate and you might not be able to afford to re-build your home if it was burned to the ground, or replace your possessions.
Over-estimating wouldn’t prove quite as terrible as at least you’d be fully insured, but you could find yourself paying more than you need for your cover.
How do you work out how much insurance you need?
Deciding on the necessary levels of insurance you need for buildings and contents cover isn’t particularly difficult. With a little effort you can work it out and sleep easy knowing you’re correctly protected and aren’t paying over the odds.
Buildings insurance is there to cover the structure of your home from damage and theft.
This includes any outbuildings such as garages, garden offices, greenhouses, walls and sheds as well as the more permanent fixtures and fittings, such as windows, roof tiles, kitchen units, bathroom suites and built-in wardrobes.
Re-build cost, not your home’s market value
If you imagine your home was totally destroyed, perhaps in a fire, the level of insurance you need is the maximum amount it would cost to re-build your home from scratch.
This, of course, is different to your home’s market value i.e. what you would be able to sell it for.
Most standard policies now offer a blanket maximum claim figure (£500,000 is a common) for re-building costs. But some insurers will ask you to come up with a figure.
In either case, it’s still your responsibility to check that the maximum claim allowed would easily provide you with enough if you had to have your home re-built.
How to estimate the re-build cost
Estimating the re-build cost of your home shouldn’t involve plucking a figure out the air. Help is available from a number of sources:
- Freely available guides and information – The Royal Institute of Chartered Surveyors (RICS) provides a Building Costs Information Service that has a very useful costs assessment calculator and gives free advice on rebuilding costs (this is mainly for use by those with standard-build homes, however).
- Ask a local builder – It’s helpful if you know a good reputable builder as most will very quickly be able to give you an accurate figure. Don’t forget to add on the professional fees also usually involved, such as those architects and solicitors would charge.
- Use a surveyor – You could use a surveyor recommended by friends or family, or approach RICS who will put you in touch with a qualified local surveyor.
- Non-standard properties – Particular care is needed when estimating build costs for homes which are not of a standard build type, such as those which are listed, have thatched roofs, or are converted properties such as water mills or churches.
Contents insurance is available to financially cover you if your possessions are lost, damaged or stolen.
‘Contents’ essentially refers to everything in your home that could be taken with you if you moved. This also involves the less ‘permanent’ fixtures and fittings than those elements included under buildings insurance.
It includes those items you could ‘carry’, such as televisions, sofas, gadgets and jewellery, as well as items which are less obviously transportable, such as carpets, curtain fittings and freezers.
New replacement cost, not ‘second-hand’ value
When estimating the value of your home’s contents, it’s vital to remember that you should base your figures on how much items cost to buy new, rather than what you purchased them for or their current second hand value.
This is because the vast majority of home insurance policies now offer contents cover on a ‘new for old’ basis; in other words, something being claimed for will be replaced with its brand new equivalent.
Best ways to go about estimating
If you don’t want to be under-insured, and potentially lose out if you have to make a claim, it’s crucial you come up with an accurate figure for the value of your home’s contents.
The Association of British Insurers estimates that in the UK the contents of an average 3-bedroom home are worth £55,000.
Here are a number of tips for getting your valuation right:
- Go through room by room – Go through your property room by room, placing a value by every single item, not forgetting fixtures and fittings such as carpets and curtains. As mentioned above, it’s the new cost, not what you paid for an item, or its second hand value, that matters.
- Make thorough lists – List each room separately and have an items column, a value of each item column, and a total figure clearly indicated at the end of each room’s list. Be very detailed and include everything from sofas and carpets, to bathroom cabinets, fridges and bookshelves.
- Don’t forget items in outbuildings and gardens – Most standard policies, but certainly not all, include those things you keep outside of the main building. Don’t forget to make lists for items kept in areas such as garages, sheds and greenhouses, including mowers, power tools, furniture, bicycles, garden furniture, expensive plants and trellis work.
- Researching value – It’s quite easy to check the cost of a new replacement for an equivalent item by searching online. However, for those items less easy to value, such as jewellery, musical instruments and antiques, you may need to get a quote from a specialist valuation company. If you’re uncertain how to go about this, your insurer should be able to offer guidance.
As mentioned above, those items you own which you think are of greater value may need specifying:
Usually you need to specify anything you think worth over £1,000, and up to £2,000, to your insurer. Anything worth over £2,000 may need insuring separately.
Items that need specifying could include antiques, stamp or coin collections, artwork, precious materials, jewellery and musical instruments.
It doesn’t include electronics such as televisions and laptops, unless they’re worth more than the approximate £2,000 mark.
Try and have valuations done every 3-5 years on your more valuable possessions as what they’re worth may increase.
Also try to keep and collate evidence of ownership. Valuations are one way of doing this, but pictures, receipts, service bills and other types of documentation help.
Away from home cover
What’s known as ‘away from home’ cover isn’t always provided as standard.
It supplements ordinary cover by insuring your possessions for loss, theft and damage when you’re away from your home too. You can usually request it to be added to your cover for a relatively small sum.
Away from home insurance protects you financially when out and about for items such as:
- Gadgets such as smartphones, tablets, laptops and GPS systems
- Handbags and their contents
- Bicycles (see Bicycle Insurance Guide)
- Items in transit may be included such as frozen foods and furniture
Be aware that nearly all contents cover policies set claim limits for both individual items and claims in total.
For single items covered by standard policies this is often around the £2,000 mark (but items worth over £1,000 may still have to be specified).
The total claim limit will often depend on how much you estimate your home’s contents to be worth (as this is the main factor influencing the premium you pay), but often is fixed at anywhere between £30,000 and £50,000.
Dangers of underinsuring and not specifying items
It’s very common for people to under-estimate how much their possessions are worth as they don’t take into account items that are perhaps less obvious, such as carpets (often the most expensive items in a home to replace), curtains, rugs, wardrobes and large white goods such as freezers and dishwashers.
The average underestimation is as high as £15,000, leaving thousands of individuals whose homes are flooded, destroyed by fire and stripped by burglars devastated when they claim.
Items of value (as mentioned above, often anything worth over £1,000) commonly need to be specified to an insurer so your premiums can be worked out on a ‘risk’ basis.
Some of the issues caused by not specifying items include:
- Valuable items which haven’t been specified cause problems. Insurers need to know how many you own in relation to claim limits, as it influences how much of an insurance ‘risk’ you are, and therefore the premiums you pay.
- Claims for items which haven’t been specified to the insurer, but should have been, can lead to claims being rejected or pay outs considerably reduced.
- Another problem with high value items is not having valuations done. Valuations both provide evidence of ownership and what the item is worth. Insurers, for obvious reasons, find it difficult to assess a valuable item’s worth without the item being provided, which it can’t be if it’s been stolen or lost.