With the purchase of a home probably the biggest financial commitment that most people will make, getting the right cover for your property is vital. Here we explain what buildings insurance is all about.
This article covers:
- Is buildings insurance compulsory?
- What does it cover?
- What does it not cover?
- The sum insured
- The rebuilding cost
- Where can you buy buildings insurance?
- Cover for flats
Is buildings insurance compulsory?
If you have a mortgage, your lender will insist on you having buildings insurance before it releases the funds. It isn't compulsory for those without a mortgage but as your home is your most valuable asset, it makes sense to insure it against the unexpected.
What does it cover?
Buildings cover is designed to protect your property from the unexpected: fire, flood, storm damage, smoke damage, lightening strikes, subsidence, earthquakes, damage from the escape of water or oil from heating systems, explosions, riots, impact of any vehicle (including aircraft) or animal, and falling trees and radio signal equipment.
It doesn't cover any of your home contents but it does cover the property structure and any permanent fittings, such as baths, toilets and fitted kitchens. It also covers outbuildings such as garages, greenhouses and sheds. Depending on the policy, your cover might even extend to garden walls, patios, fences and gates, though you would have to check the policy wording to be certain.
It also covers you against damage caused during a burglary. You can also protect against accidental damage or to provide for alternative accommodation in the event that your property is so badly damaged that you cannot live there for a time.
What does it not cover?
You will not be able to claim for damage caused by general wear and tear or poor maintenance. It's important to read the policy carefully before buying cover. Check the excess too. It's generally £1,000 for expensive risks, such as subsidence, a heave, a landslip or flooding, though there can be smaller excesses of £100 or £500 for damage claims.
The sum insured
With buildings policies, the sum insured represents the cost of replacing your property - based on the cost of rebuilding your home, not its market value. The sum insured is also the maximum the insurer will pay out in the event of a claim. If you are insured for only £100,000 and your rebuilding costs are £150,000, you might not be able to afford to have your home rebuilt to the same size or standard.
The rebuilding cost
The valuation carried out when you bought the property should contain the value of your home and this should be used as the rebuilding cost - it will not necessarily match the amount you are paying or paid for the property. Get your rebuild cost recalculated if you have extended or significantly altered the original property.
The Association of British Insurers (ABI) has a rebuilding cost calculator on its website. You'll need to work out the size of your property in square feet or square metres (the calculator works for both). Be aware that the rebuilding calculator is based on homes of a standard quality finish, so if your property has a designer kitchen and rare Italian floor tiles, you might have to up your rebuilding calculation by 20% to 25%.
Where can you buy buildings insurance?
You can buy cover through brokers, via the internet, direct from insurance companies or via your mortgage lender. Brokers may offer a route to more specialised insurers - useful if you live in an area where there is risk of flood or subsidence.
Cover for flats
Buildings cover for flats is generally organised by the freeholder and is arranged as a single policy covering the whole block (or house, where a single property has been converted into flats).
This is to ensure communal areas, which might otherwise be missed out, are covered. Each flat-owner is then charged a share of the policy cost, usually through annual service charges. Where the freehold has been taken over by a freehold management company set up by the tenants, this system also applies.
You should be given a copy of the policy, which details what is covered and any excesses that apply. If you feel the sum being charged for your buildings insurance is excessive, you can challenge the freeholder at a Leaseholder Valuation Tribunal.
This article was last updated on 6 September 2006