Home insurance: the features you can't do without

Home insurance policies come in different shapes and sizes. Follow these tips and you won't overpay for your buildings or contents insurance.

Home insurance – that's both buildings and contents insurance – is a complicated product with lots of small print showing what's covered, and even more eye-straining text describing what's excluded.

Each home insurance policy is different, offering different features, which can be bewildering to contemplate. The question is: which features should you pay for?

The simple way to look at this

When insurance customers pay their premiums they all get pooled together. Portions of this pool are poured out to those customers who claim, but a large part of the pool is never returned to customers. This means that, on average, insurance customers get less out of insurance than they pay into it.

If a home insurer were a casino and the customer a gambler, the insurer has the odds stacked very highly against the customer.

For this reason, you should only pay for insurance cover that you need, and no more. To put that another way, you insure yourself against risks that you couldn't easily afford to pay for from your own income and savings.

Risks to get insured against

Obvious risks that most people couldn't easily handle themselves include subsidence, your home burning down, or being flooded. Except in very unusual circumstances, all buildings and contents policies will insure you against these risks as standard.

So now we come to lesser risks, and this is where customers need to really pay attention to the small print, as well as consider what they really need before spending extra for more cover.

Theft is a tough one

Unfortunately, if you would prefer to use your savings to pay a large portion of the loss when you're burgled, it might be impossible. No policies that I know offer extremely high excesses in the thousands of pounds.

Plus, when insuring your contents, you aren't even allowed to insure yourself for less than all your contents are worth, and pay any extra in the event of a claim.

If you don't admit the full value of all your home contents, insurers will reduce all your contents claim payouts by a similar percentage.

For those of you willing and able to self insure with savings to a large degree, that isn't a problem.

What is a problem, though, is that, in theory, insurers could also invalidate your insurance completely, and refuse to pay any part of the claim. It could do this on the basis that you were more at risk of theft than you admitted at the beginning, because you had more property in your house than you told them.

The nub is that you might have no choice but to tell them the full value of your home contents.

Accidental-damage cover could be one to avoid

Most home insurance policies have a little bit of accidental-damage cover, but few include the full works as standard. This means you can choose to leave it out if it'll save you money and you can afford to pay for mishaps yourself.

Consider the sorts of accidents you could have, such as damaging carpets, furniture and stereos. If you could easily afford to replace any of these items, you probably shouldn't pay the extra cover.

Not many policies will replace a whole bathroom or furniture set to keep it identical, because it can be a very expensive business. If you couldn't easily afford to do that yourself, you might want to look at policies that will.

However, personally I'd expect you to pay a very high cost for insurance that will replace sets – to cover a load of fraudulent claims. I imagine that this is an easy way for some frauds to replace their whole set for a fraction of the cost. You might instead have very strict house rules about what your family are allowed to do on and around those items, to protect them from damage.

It's the same with many other items

Some home insurance policies cover you for money in the home and you might be tempted to pay a higher premium for that. I think that, unless you're wacky enough to put all your savings under the mattress, most of you should easily be able to afford the loss of any savings you keep at home. If you can't, stop keeping it at home!

Some policies try to tempt you with cover for your possessions that are outdoors or in outbuildings. Don't go for this cover if you could easily afford to replace the items in your garden, shed or garage.

Many policies cover you for loss of your personal possessions, such as your watch, jewellery or MP3 player, when you're travelling outside the home with them. Unless you've stuck too much of your wealth into the items you're carrying around (which many people do seem to do in this country) you should easily be able to afford to replace them if something goes wrong.

If that's the case, it usually isn't sensible to pay for the extra cover.

It's a similar story with replacing freezer contents, with special events like weddings, and with loss or theft of keys, since not all policies cover them.

To decide whether to pay extra for that cover, you need to think about which of those risks you couldn't easily afford to pay for by yourself...

It's almost as simple as that

But there are two more factors to have a little think about, on top of whether you could easily afford each risk.

If you think the cost of any additional cover seems steep, you should consider whether the price is worth it, even if you think you would need it. After all, you can't just pay any price for it.

Finally, if you consider yourself to be extremely low risk compared to average in one area, or extremely high risk, perhaps because your family is particularly clumsy or forgetful, you might let that influence your choice too.

For home cover that many of you should think about avoiding, see my article on “the next big financial scandal”: Car and home insurance, legal cover and home emergency cover.

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