advice on insurance

It isn’t compulsory to get contents insurance, but should the worst happen and all of your possessions are stolen or damaged beyond repair, the costs of replacing them in one go will be considerable. Although fixtures and fittings such as cabinets, bath and shower units, toilets and so on, are not covered by contents insurance (these fall under buildings insurance instead), almost everything else that you keep in your home can be covered by this type of insurance – making it an essential requirement for most people. (For a detailed breakdown of the things which are covered by contents and building insurance respectively, see What does home insurance cover?)

How much contents cover do you need?

home theatreInsurance advisors are unanimous in their opinion that it is essential that you do not under-insure when it comes to getting your contents covered. It is important that you know the true value of your possessions. In order to know this it is necessary for you to do an inventory of the things in your house, not forgetting items that are stored in the loft or the basement, taking note of their value as new – this means the amount you would need to buy them now, not the price you got them for at the time of purchase, this is particularly pertinent if you are getting a new for old policy (see below).

You may very well find that the sum total of these things is more than you would have thought. It is this amount that you will need to receive as the maximum sum form the insurer in the event that your possessions are stolen or completely destroyed. It is estimated that one in five people who take out contents insurance policies are actually under-insured, which means that they wouldn’t receive enough money back to replace their damaged or stolen possessions.

Most contents insurance policies will allow you to cover certain items for accidental damage, usually stereo equipment and other similar goods, but not for furnishings. If you have a particularly valuable or vulnerable item of furniture that you would like to be covered for accidental damage, you will likely need to pay extra.

Contents insurance costs

moneyThe two main types of contents insurance are new for old and indemnity. The most common is new for old, sometimes referred to as ‘as new’ insurance. With this type, in the event of damage to your property, the insurer will pay the full cost of the repairs, and in the event of destruction or theft, the payout will cover the full cost of the equivalent new items.

Indemnity insurance has cheaper premiums than ‘new for old’. This is because with indemnity insurance, the payout is reduced to take into account any depreciation in value or wear and tear. So, if your five-year-old television is stolen, you will receive enough money to by a similar second hand television, rather than a new one. Consequently, although new-for-old policies have higher premiums than indemnity policies, they are able to pay out considerably more. In the event of a large claim, an indemnity policy may not provide enough for you to replace your possessions.