What is Buildings Insurance ?

Buildings Insurance

Buildings insurance covers the structure of the house including fixtures and fittings, together with garages and outbuildings. There is limited cover for boundary walls, gates, paths, drives and swimming pools. In general, anything that would be left behind if the occupier moved is included in buildings insurance. If you're renting, buildings insurance is paid by the landlord, not you.

The policy should cover damage caused by fire, explosion, lightning, earthquake, the impact of aircraft vehicles or animals, theft or attempted theft, the breakage of aerials, and oil leaking from a central heating system. It also covers damage caused by riot and malicious persons, storm, flood, the escape of water from tanks or pipes, subsidence, landslip or heave, and falling trees. The cover for subsidence involves an excess and many policies have an excess on other sections such as theft or flood.

Buildings insurance can't cover everything. Exclusions often include storm or flood damage to gates and fences, and frost damage. If the home is left empty or unoccupied for over 30 days malicious damage, water leakage and theft won't be covered. Other exclusions are damage caused by war, rebellion and revolution and damage caused by sonic booms and contamination from radioactive fuel or waste. Householders can be compensated for damage from this last cause through special arrangements with the Government.

The Sum Insured

* When householders buy contents or buildings insurance they must decide the right value to put on the items covered. This amount is known as the "sum insured". The premium to be paid depends upon this amount. Premium rates may be higher for certain special risks - for example for a home in an area where burglary happens frequently or for a thatched cottage.
* The sum insured must be sufficient to cover the total value of the goods and buildings concerned. Many people unfortunately underestimate the cost of replacing or repairing their homes and their contents. If the sum insured is set too low then, when damage occurs, the householder will find that the insurance could cover only a part of the cost.
* For buildings, insurance must cover the full cost of rebuilding the property including architect and surveyors fees and the cost of clearing away the debris and meeting any new building regulations or by-laws. This is not the same as the market value of the house.
* Rebuilding costs often rise at times when house prices are not moving and vice versa. Take the case of two identical houses in the same town. One is next door to a noisy factory in a crowded industrial area while the other house is on the outskirts of town with pleasant country views. The houses will command very different market prices but the rebuilding cost will be the same.
* For contents, the full value is the cost of replacing the house as new. If a everything in new policy is replacement as not taken, then an allowance should be deducted for wear and tear. The sum insured must be reviewed regularly, particularly at times of high inflation. Otherwise the householder will soon find that the sum insured is too low. Most insurance companies offer index-linked policies where the sum insured is automatically adjusted in line with general rises in costs.

Accidental Damage

Policies spell out clearly the risks they cover - like fire, theft and flood. For "accidental damage" cover you have to pay much more premium. Then, you are covered against such risks as spilling paint on a carpet, or dropping a camera and breaking it.

Indemnity or Replace-as-new?

Indemnity policies take full account of the wear and tear on goods so that any claim payment would reflect the age or condition of damaged items. For example the policy would pay less for a ten-year-old carpet damaged by fire than for a carpet which was only a few months old. Replacement-as-new policies provide for the full replacement of badly damaged or destroyed goods with new. There are usually some exceptions such as clothing and household linen.

Clearly, with such a policy, the sum insured (on which the premium is based) must be higher. For a replacement-as-new policy, the contents of the house must all be valued at their new price. Mixed policies can also be bought. These provide replacement-as-new cover for some items such as furniture, carpets and electrical goods which are less than a certain number of years old and indemnity cover for the rest.