Home Insurance

A home policy has two jobs that are easy to confuse: putting the building back up, and replacing what was inside it. They are priced separately, and most underinsurance comes from getting the first one wrong.

Rebuild cost is not market value

The sum insured on a building should be what a builder would charge to rebuild it from the foundations, including demolition, design fees and current material prices. That figure has nothing to do with what the house would sell for — land is not at risk, and a rebuild happens at today’s costs, not the ones from the year you bought.

Review the figure at every renewal. Construction prices move faster than most policies are updated.

What a standard policy covers

• The building — walls, roof, fitted kitchens and bathrooms, and permanent fixtures.
• Contents — furniture, appliances, clothing and everything you would take with you if you moved.
• Liability — claims made against you when someone is hurt on your property.
• Additional living expenses — somewhere to stay while the house is uninhabitable after a covered claim.

What it usually does not

1. Flood, which is normally a separate policy or endorsement
2. Earthquake and other ground movement
3. Wear, damp and gradual deterioration
4. Individual valuables above the single-article limit
5. Business equipment and stock kept at home, beyond a small allowance

Named perils or all risks

A named perils policy lists what it covers, and pays for nothing else. An all risks policy covers any sudden, accidental loss except what it explicitly excludes. The second is more expensive and much easier to rely on.

If you cannot say from memory which type you hold, that is the first thing to check on the schedule — it changes what every other line is worth.

Getting the contents figure right

Walk each room and write down what replacing everything in it would cost new. Most households arrive at a number two or three times their first guess, and kitchens, wardrobes and garages account for most of the gap. Photograph the rooms while you are there; it makes a future claim far quicker to settle.