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Home Insurance - The Basics Explained

Confused by home insurance and don’t know how to separate one policy from another? This quick guide will put you on track breaking down the different types of home insurance cover, what to look for, how premiums are calculated and how to get a cheap deal.

Most of us lead busy lives and have little time to become financial experts. Yet every year we find ourselves bombarded with difficult money-related decisions, whether they relate to our mortgage, our savings or our utility bills. As a consequence, home insurance is often left on the scrapheap.

The majority of homeowners have it and know broadly what it does – it protects us if something goes wrong in our home. However, what makes your premium higher than your neighbour’s? Will you really get the protection you need when it comes time to make a claim? And could you find a cheaper policy?

This guide will attempt to breakdown the basics so you’re in a better position to find a home insurance policy that suits your needs.

What is home insurance?

Home insurance, also known as household insurance and house insurance, is there to protect what for most is their most valuable investment – their home. Most home insurance policies are broken down into two types – buildings insurance and contents insurance which can either be bought together or separately. So what does each policy cover?

As you may expect, buildings insurance protects the structure of your home as well as its permanent fixtures and fittings. Typically when you take out a mortgage, a lender will insist that you have buildings insurance in place as its own form of protection.

A buildings insurance policy will normally protect you against risks such as floods, fires and storm damage. Check your policy to see if it includes other hazards such as malicious acts and general wear and tear. The amount of cover you need should be based on the rebuild value of your home rather than its market value.

Contents insurance meanwhile protects all of the items you keep within the home such as carpets, curtains, clothes, furniture and so on. Contents insurance can be a little more complicated as the range of cover available differs widely from provider to provider. Most will cover your items against risks such as theft, floods and fires. However, risks such as accidental damage, as well as protection for items such as business equipment and garden contents can show significant variations. Some insurers will also cap the amount you can insure a single item for.

To determine how much cover you need you should make an honest assessment of the replacement cost of all the items in your home.

How are home insurance premiums calculated?

Home insurance providers will base your premiums on risk factors. For example if you live in a flood risk area your premiums are likely to be higher – by the same token living in a high crime area will also work against you.

Many homeowners wonder why they pay significantly more (or less) than a neighbour who lives in an identical house. This could be for a number of reasons. For example, your neighbours may have better security devices installed in their home. It could also be based on personal circumstances. If they spend more time at home than you, then they are likely to pay less as the home is rarely unoccupied. They may also have a longer no-claims history than you.

How can you buy home insurance cover?

To find a cheap home insurance deal you’ll need to compare as many policies as possible. This isn’t a time consuming task however, because a number of comparison websites now offer home insurance tools. These allow you to enter your details and those of your home into a finder and it will retrieve quotes from numerous providers for you with one search. You then simply find the policy that’s right for you and click through to the provider’s own website to complete the deal.

How can you lower your home insurance premiums?

Remember that home insurance premiums are based on risk, so the less risk you pose, the lower your premiums will be.

For example you could cut the risk of a fire in your home getting out of hand by installing smoke alarms, fire extinguishers and even by giving up smoking. You could reduce your theft risk too by fitting security devices such as burglar alarms and time-switch lights in your home.

Other ways to earn cheap home insurance including paying your premiums annually instead of monthly to cut out interest charges and increasing your voluntary excess – the amount you will pay should an insured event occur.