A beginner’s guide to home insurance
Our homes are often the most valuable asset we own; so it’s only natural that we want to do all we can to look after them. Whether you’re worried about the physical threat of storm damage or the risk of theft, property insurance can help you achieve the security and peace of mind that you need. You only need to recall the widespread destruction caused by Hurricane Sandy in 2012. The payouts for those who had a home insurance policy totaled $25 Billion from the insurer Lloyd’s alone. Here we look at a beginner’s guide to this important policy and what it means for you.
What is home insurance?
Home, or property, insurance is a policy which is designed to protect your place of residence. Under the terms of the contract, you pay a regular fee to the insurance firm who promise a lump sum payout under certain circumstances. This means that if an event causes damage to your home or if you are the victim of theft then you can recover your losses from the insurance company rather than having to cover any costs from your own pocket.
Are there any exclusions?
All insurance policies have some scenarios or circumstances which are not covered. This will vary depending on the firm and policy which you choose and make it vital that you read all the terms and conditions carefully and check the fine-print for any exclusions. One of the most common exclusions found on property insurance policies will be if a theft occurs due to negligence (such as failing to lock the door when leaving). Some policies may still offer you a payout but you will need to check in the terms and conditions.
What types of policy are there?
Although each insurance policy will change depending on the firm which is providing it, there are a few main types of insurance which you can get for your home. These are:
- Buildings insurance
- Contents insurance
- Comprehensive insurance
An overview of each policy and who it is aimed at is provided below.
This is a basic policy designed to cover the physical property. Under this policy, you are only insured against any physical damage to the building and permanent fixtures and fittings – such as doors and windows. The external perimeter of your property may also be covered so that you’re insured against damage to your gardens, fencing and outbuildings such as garages or car ports. This policy may be a prerequisite for those applying for a mortgage but should not be confused with Private Mortgage Insurance (PMI) which is an insurance policy which protects the mortgage lender against the buyer defaulting on their loan. In the USA, it is generally required when a down payment of less than 20% of the property’s asking price is offered.
Contents insurance is a policy which offers protection on the possessions and items held within the home. This can cover personal possessions, such as jewelry and ornaments, as well as soft furnishings such as curtains and furniture. Some individuals choose to go without this sort of cover but doing so could expose you to great risk. In the event that you are robbed, buildings insurance will only payout for any damage caused when the thief forced entry into your home meaning the replacement of your belongings or repairs to internal damage will need to come from your own pocket.
Similarly, buildings insurance would only payout for physical damage done to your property in the event of bad weather, meaning that any damage caused internally by the likes of floods would not be protected. Contents insurance protects against these scenarios and is particularly vital for those living in rented accommodation where the building will usually be insured by the landlord, leaving them to take care of their own possessions.
Put simply, comprehensive property insurance is a combination of the two policies mentioned above. This is what is needed for complete and total protection of your home and is highly recommended for homeowners.