Often referred to as buildings insurance, this is the type of insurance that will cover the physical structure of your property as well as its fixtures and fittings. Although it isn’t necessarily compulsory to have buildings insurance, the potential ramifications of not having it are disastrous. If your home was to experience serious flood damage or destroyed by fire, and you are not insured, you could be left homeless. If you have a mortgage, or are in the process of getting one, you may well find that the lender imposes buildings insurance as a condition of the agreement.
Once the contracts are signed, and you have become the owner of the property, you have sole responsibility for it, so it is a good idea to have the building fully insured from the first day of your ownership.
Buildings insurance costs
Naturally, it is important to consider the amount you spend on your buildings insurance not only from the point of view of a regular outgoing that needs to be kept to a minimum, but also in light of how much money you would need to repair your property should the worst come to the worst. There’s no point paying small premiums if you end up being under-insured.
In most cases, you will find that the size of your premiums are based on the re-build cost of your property – i.e. the amount of money that would be needed to build your property again from scratch should it be completely destroyed.
The good news is that this amount will almost certainly be less than the current market value of your home. The reason for this is that in the event of a re-building project you will already own the land.
If you want to get accurate and impartial advice on the actual costs of rebuilding your home, you can ask a surveyor from the Royal Institute of Chartered Surveyors to do the job for you.
Is your property high risk?
The other major factor that will affect the size of your insurance premiums is its risk category. There are a number of things that may categorize your property as having a high risk factor, the most common being the possibility of subsidence.
Other things are the amount of claims that are routinely made in your area, and the likelihood of your home being flooded.
If you are concerned about that your home may be categorized as high risk, you can contact the Association of British Insurers for impartial advice.
One thing to be careful of is making monthly payments. It is not uncommon for insurers to take the annual cost and then charge interest on top for each monthly installment. Very often, it will work cheaper for you to pay for your buildings insurance in yearly installments. Also, when taking out a policy, check that it covers only as much as you need it to. For example, it may be the case that you end paying to insure outbuildings (sheds etc.) even if you do not have any.
What about contents insurance?
Whereas buildings insurance is needed only by homeowners and landlords, contents insurance is essential for everybody. Homeowners and tenants alike need to make sure that their worldly goods are covered so that in the event of damage or theft, they can be replaced. See How Much Does Contents Insurance Cost? for more details.