Once you have exchanged contracts on a property it is prudent to insure the structure against damage. This insurance will involve payment of an annual premium. Normally, the building society or other lender involved with the property purchase will make the necessary arrangements to insure the dwelling. If the property is leasehold it is possible that the freeholder or his agent will make these arrangements. You will have to pay the premium. Below we discuss what building insurance and other insurances cover.
What is covered
The building policy covers loss or damage to the structure by disasters or misfortunes , listed on the policy- for example, fire, explosion, theft, storm, flood and burst pipes.
Terms of individual policies may vary but ‘the buildings’ are normally defined as the dwelling including foundations, central heating and sanitary fittings, fitted kitchen and bedroom units, loft insulation and decorations. Any garages, greenhouses, outbuildings, drives, paths, walls, permanently installed swimming pools, gates, fences and hedges are also included, but some risks are not. See What insurance does not cover.
If the buildings are damaged by one of the perils listed on the policy a claim can be made for expenses incurred in connection with the reinstatement of the property, such as architect’s and surveyor’s fees, and the cost of removing the debris and shoring up the house.
Cost of alternative accommodation.
Most policies cover the cost of alternative accommodation if it is necessary to move out of the property while repairs are being carried out.
If the house is let, a claim can be made for loss of rent incurred during the period of reinstatement. However, the amount that can be claimed for alternative accommodation and loss of rent is limited to 10 per cent of the total sum insured.
Accidental damage to wash hand basins, sinks, baths, lavatory pans , underground pipes, drains, cables, glass in windows, doors or greenhouses is covered but the extent to which it is covered may vary from policy to policy.
Owner’s liability to the public
The standard household policy normally extends to cover the insured against all sums for which he or she would become legally responsible to pay as owner for injuring others or damaging their property because of the insured’s negligence to maintain the property in good repair. For example, if old and broken guttering came crashing down on a neighbour’s car, provided that the claim involved you as the owner, it would be covered under the terms of the policy. However, claims of this nature are most often made against an owner-occupier as occupier of the property and as such are usually dealt with under the contents insurance policy.
What insurance does not cover
It is normally the responsibility of the property owner to keep the building in good repair. Buildings insurance does not cover damage due to normal wear and tear – for instance, the garage door falling off its hinges due to lack of maintenance. Neither does the policy cover damage from such things as dry rot or woodworm.
Some of the perils listed do not apply to all parts of the property. Storm and flood damage to fences and gates is normally excluded under most policies, It is also common to exclude damage resulting from bursting of pipes or escape of water, malicious persons or theft or attempted theft, leakage of oil, breakage of glass and sanitary fittings when the property has been left unfurnished for a period longer than 30 consecutive days. Alternatively, in some policies these restrictions apply where the house has been left unoccupied for a period in excess of 30 days.
The costs necessary to prove a claim are not covered under the terms of the policy. This is particularly important in complicated cases such as subsidence as it is often necessary to appoint specialists where this type of damage has occurred.
Insurers try to keep administration costs to a minimum and one way of doing this is by making you responsible for a specified amount of any claim, thus reducing the number of small claims to be processed. Examples of these are damage caused by storm, flood, escape of water, malicious persons, falling trees or impact damages. Such amounts are known as ‘excesses’; the amount and perils to which they will apply will vary from insurer to insurer.
Most policies have large excesses in respect of damage caused by subsidence, heave or landslip. This, again, will vary but it is normally calculated as a percentage of the total cost of rebuilding the house if it were totally destroyed; most policies specify a limit to the excess claimable.
It may be possible to remove some of the excesses by payment of an additional premium. Your insurance company will give you details.
All risks building insurance
A number of insurers grant wider cover than that normally included under the household policy and will insure most types of accidental damage to the buildings. Such additional cover is considerably more expensive than standard cover.
How much insurance?
It is normally a requirement of a household policy that the buildings should be insured for full reinstatement cost: that is, the cost of rebuilding the property including outbuildings should it be totally destroyed. This figure must not be confused with the market value as there is likely to be a difference between the two. Generally speaking, the cost of rebuilding a house is likely to be much higher than the market value of the property.
The mortgage lender will normally stipulate a minimum sum insured. They may also provide advice and guidance as to what the property should be insured for during the period of the loan. However, the final responsibility for ensuring that the property is insured for the correct 30 amount rests with the owners and it is wise to update this figure annually.
The sums insured on most policies are index linked, so that the sum insured is changed automatically when there is a variation in house building costs. This system is only suitable for properties of standard construction.
A base figure is used to which an index, usually the one prepared by the Royal Institution of Chartered Surveyors, is applied. This table is published in the magazine Building each month. Provided that the base figure is correct there should not be any question of under-insurance.
The adequacy of the sum insured should be checked regularly and in this respect the British Insurance Association publish a Guide to Insurance for the Home Owner which gives the average cost of building various types of housing in different areas of the country.
Choosing your policy
Policies will vary, but there are three main types by which claim settlements are determined. /. New for old. Under this type of policy the full costs of repairing the house will be paid up to the total sum insured, provided that the house has been kept in good repair, and the sum insured is adequate. There will be no deductions for wear and tear, either for the cost of repairs to the structure or in respect of redecoration. 2. Indemnity. In the event of a claim under an indemnity policy the insurers will pay out sufficient money to restore the property to the condition it was in before the damage occurred. Some deduction for wear and tear will usually be made. For example, if a room which had been decorated some three years previously was damaged by fire, the insurers would not pay the full cost of redecorating it because the old decorations are being replaced by new ones. In effect, you may be asked to pay half the cost of redecorating on the basis that the decorations were halfway through their expected lite.
If the structure which is of a more permanent nature, is damaged, you may get the whole cost of rebuilding provided that the property has been kept in good repair. j. Average clause. Some policies contain an average, or self-insurance, clause. Under this, the claim will be met provided that the sum insured is adequate. However, if there is under insurance the amount paid will be scaled down accordingly. For example, where a person makes a claim for £4,000 and the property is insured for £10,000 but should be insured for £20,000, the insurance company will pay out only £2,000 on the basis that the house was under insured by 50 per cent.
If you have to make a claim, contact the insurers, mortgage lender , insurance adviser or broker as soon as possible after the damage has occurred. If the property is leasehold it may be necessary to contact the freeholders or their agents. Give as many details as possible, including the policy number and a brief summary of the incident.
It will be necessary to complete a claim form sent to you by the insurers and to get estimates of the costs of repairs. Reinstatement work should not be authorized until the insurers approve the claim, other than emergency repairs needed to prevent further damage. The insurers may send a representative along to assess the damage and consider whether the buildings are properly maintained and insured.
Contents such as furniture, carpets, curtains and personal belongings should be insured. If you rent items such as televisions, you may be required to insure them by the rental company.
The same principles apply to contents insurance as to building insurance with regard to the sums insured, the range of perils covered, and claims settlement. Index-linking is also available— in this case it is the consumer durables section of the Retail Price Index that applies. The premium rates are higher for contents insurance and vary in different parts of the country. The most expensive areas include Central London, Liverpool and Glasgow.
There will usually be a limit to the amount of cash which may be covered, or alternatively cash will not be covered against theft unless there is a physical break-in at the property.
It is common for the contents policy to cover accidental damage to television sets in addition to the damage caused by the usual range of perils. Portable television sets are normally excluded from this type of cover.
Because the policy wording can differ so much, check the policy details carefully so that you are fully aware of the limitations, and it in doubt about any clause ask for a clear explanation.
All risks cover
It is normal to include items of value such as jewellery, furs. ‘Hi-fi’ equipment, under this section of the policy which covers loss or accidental damage to these articles both in and away from the property. The extra protection provided under this type of policy attracts higher premiums and, again, residents of
Central London, Liverpool and Glasgow pay the highest rates.
There are various other specific types of insurance which may not apply to everyone and are not normally covered under contents or property policies.
Contents of deep freezer
This covers the food stored in domestic deep freezers against deterioration due to temperature change caused by breakdowns, accidental damage to the freezer or failure of the temperature control device. Variations in the type of cover are available.
This covers loss or damage to the caravan and equipment and third party liability up to an agreed limit. Additional cover is available for loss or hiring charges for bookings already made and for the cost of alternative accommodation it the caravan cannot be lived in after an insured loss.
Cover for loss or damage to the boat, equipment and trailer usually has a limit on the total value for this type of craft. There is a limit on the overall length of the craft and also the age. These limitations will vary.
This covers damage or theft of equipment anywhere. // takes a I’cry long time and a considerable financial outlay to fully furnish and equip your home, so it makes sense to insure it adequately. Make an inventory of all your possessions, not forgetting to include books, records, cassettes and tapes, mirrors, pictures, cameras and all those other treasured items that make your home uniquely yours. Consider just how much it would cost to replace it all – it may well add up to much more titan yon ever anticipated
It may be possible to include several forms of insurance – sometimes including motor insurance- under one policy, which simplifies the payment of premiums. However, where there is a mortgage on the property, the lender may not allow the building insurance to be included m the package. Some insurers allow a discount where the total premium is fairly large and most provide a facility to pay by instalments.
Apart from a form ol endowment policy used as a way of repaying an advance, other types of insurance can provide a means of repaying a mortgage or meeting the out-goings in the event of death or incapacity. The types of insurance described here may also be suitable for any person whether or not there is a mortgage in force.
The objective is to provide dependants with sufficient financial resources to maintain their standard of living in the event of loss or reduction of income. The total family income should be taken into account when calculating the level of insurance benefits required. Benefits are paid in the form of a lump sum or regular periodic payments.
In all cases the amount of the premium depends upon the age and health of the person insured and the length of time that the insurers are to be at risk.
This provides for a lump sum to be paid on death. The premiums are payable throughout the period of the policy or can cease at a predetermined date. A policy can be either with or without profits, but a with-profits policy costs more.
The sum insured is payable if death occurs within the period of the policy but no amount is payable upon survival of the term. An advantage of this policy is that it provides a large amount of cover for a relatively small outlay. There are three types of term insurance:
– Decreasing term insurance. This provides for the sum insured to decrease by a predetermined amount over a period. The policy can be adapted for mortgage purposes, so that the sum insured is sufficient to cover the reducing balance outstanding on a repayment mortgage. However, to maintain full cover if interest rates increase, the mortgage repayments should be adjusted so as not to extend the loan term.
– Level term. A policy where the amount of cover remains unchanged for the specified term.
– Convertible term. A policy for a stated period which has an option to convert to another policy, say, whole life or endowment policy.
Family income benefit
A Family Income Benefit policy provides that, following the death of the insured person, a series of periodic payments are made for the remainder of the policy term. The regular payments are helpful contributions towards the costs of running a household, especially if there is a family to support.
It is not unusual for insurers to stipulate that a would-be property owner has a medical check-up before a policy is agreed. This should in no way deter you from your aim; indeed, it can be wonderfully reassuring to learn that you are in good health!
Right: when employing professional removers, do make sure that you know exactly what their estimate covers.
PERMANENT HEALTH INSURANCE
This is not strictly life insurance. The policy provides that by paying an annual premium, the policy holder would receive a regular, defined income, during a period of incapacity and while being unable to earn a living. Cover ceases however when the insured reaches a specified age. The benefits are also restricted to a proportion of normal income. The policy is suitable for anyone who is employed or self-employed.
A factor when calculating the premium is the period which elapses before a claim is made. The premium would be less if benefits were not required until a period of six months incapacity has elapsed, than for a deferment of one month. An attractive point is that the insurer cannot refuse to renew the policy even if the health of the insured has deteriorated in the meantime.
This policy provides benefits in respect of accidents that can happen to anyone, such as slipping on ice and breaking a leg. It can also be extended to cover illnesses. The benefits may provide for a lump sum as well as income benefits. The lump sum is specified in the policy and is paid either on death, permanent disablement, or for the loss of an eye or limb. Income benefits are paid at periodic intervals, say monthly, during disablement.
Whereas a permanent health policy cannot be cancelled by the insurers regardless of the change of health, a personal accident policy can be amended at renewal by insurers. The benefits on the policy are limited to a specific period, whereas under a permanent health policy benefits are paid until incapacity ceases or upon reaching a predetermined age. 34