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Property
House Insurance - The Hidden Costs
Simply put, the cost of house insurance is equal to the premiums you pay, and this figure can vary greatly, depending on a combination of several factors. The most important aspects here are calculating your house insurance requirements and deciding on the type of house insurance policy you are going to employ.
As far as buildings insurance is concerned, you will need to calculate the rebuild value of your house. This must not be confused with the market value of your house, which may be more or less than the rebuild value, depending on the current state of the real estate market. The rebuild value relates to how much it would cost to rebuild your house in the event of complete destruction as a result of a fire, etc.. This value should be reflected on your mortgage agreement and can also be arrived at by a qualified chartered surveyor, but it is your responsibility to inform your house insurance provider of this amount. Some house insurance providers offer 'blanket cover' which as far as building insurance and household insurance are concerned, will arrive at the sum insured, depending solely on how many bedrooms there are in your house. This method can be potentially costly to you (as a result of overinsurance) and, although manually calculating the value of the structure as well as it's contents may be more time consuming, it is by far the more recommendable method. Having said this, by working out the exact value of the contents of your house, it is easily possible to underestimate and consequently underinsure, so it is vitally important to be as realistic and accurate as possible when calculating replacement figures. Other factors that will influence your house insurance requirements include your postcode (how safe the area you live in is perceived to be), type of house and age (uncommon features such as a thatched roof and the building being listed will increase your house insurance premiums) and size of property.
Staying with house insurance requirements, but moving on to the household insurance policy, you will need to ascertain the value of the contents of your house. The best way to do this is to go through each room, listing all contents and their replacement values. You will more than likely be surprised at the final figure you arrive at. Most people are actually underinsured in terms of their household insurance. Make sure you take all your possessions into account, even those in the loft or attic, garden shed and garage.
When it comes to the different types of house insurance policies, we speak of 'wear-and-tear' policies (also known as indemnity policies) and 'new-for-old' policies. New-for-old or 'replacement cover' policies cover the cost of replacing items damaged or stolen, fully. The majority of household items can be covered by new-for-old house insurance policies, but again, you must check your policy to make sure you are aware of any exclusions which may apply. Also ensure that you are aware of the excess that will pertain to a claim in respect of a new-for-old house insurance policy.
Indemnity house insurance policies (wear-and-tear) will not pay the full amount for an article to be replaced as they take into account wear and tear and depreciation. As a result the premiums applicable to this type of house insurance policy will be lower than for a new-for-old policy, although some house insurance providers may still levy an excess charge on claims.
Most house insurance policies index-link (to the RPI) the sum insured in order to take into account the cost of inflation. Again, check to ensure that this is the case with your house insurance provider.
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