Buildings & contents insurance – the difference explained

If you ever get confused by the terms home insurance, buildings insurance or contents insurance – fear not! Here’s a simple guide to explain the difference.

Basically, home insurance breaks down into two types – buildings insurance and contents insurance. A neat rule-of-thumb for telling the two apart is to imagine you’re a giant and able to pick your home up in your hand. Now turn it upside down and give it a shake. Things that stay put (ceilings, floors, doors, sinks, bath etc) are covered by buildings insurance and items that fall to the ceiling (furniture, TV, fridge freezer, CDs etc.) come under contents insurance.

Buildings Insurance

Buildings insurance covers the structure, fixtures and fittings of your home, e.g. floors, ceilings, walls, roof, windows, doors, bathroom suites, fitted kitchens and built-in cupboards.

Buildings cover is compulsory for mortgaged properties as a lender will want to know that it’s investment is safeguarded. If you own the property outright, it’s your choice whether to get building insurance – but remember it’s you who’ll foot the bill if something goes wrong and you’re uninsured.

Note: unless required as a mortgage condition, you’re not obliged to take buildings insurance from your mortgage lender. However, your lender may charge a fee (typically around £25) to cover their cost of checking that your buildings insurance is acceptable. Sometimes, insurers will actually pay this fee as a sign-up incentive – something to look out for when shopping for a deal.

Buildings Insurance – What’s Covered?

A comprehensive policy should cover the rebuild/repair cost for such events as storm/tree damage; fire; lightning strike; gas explosion; vandalism; damage caused by a vehicle; plumbing disasters and earthquake.

Always check a policy’s small print to see exactly what’s included as boundary walls, fences, gates and utility pipes are note always covered. Outbuildings (e.g. garages, gazebos, sheds, greenhouses) are usually covered but again, check to make sure.

If a property lies within a subsidence or flood risk area, you may be asked to contribute a hefty voluntary excess (up to around £2,500) for any related claims, or you may be refused cover altogether.

Contents Insurance

This type of cover insures household belongings against loss, damage and theft, and is the only home insurance you’ll need to consider if you rent your home.

Contents insurance is optional as it’s you alone who will lose out if a cigarette sends everything up in smoke, or if a burglar makes off with your possessions. Therefore, if you value your belongings, contents insurance will afford you peace of mind.

The two main types of contents insurance:

• Indemnity insurance covers your contents, but any amount reimbursed for a claim will take into account wear and tear. For example, if your five-year-old sofa gets ruined, a payout will reflect the sofa’s age – obviously a lot less than its ‘replacement-as-new’ value.

• New for old cover will reimburse the full amount of a replacement sofa, but as you might expect, this type of contents cover usually costs more than the ‘indemnity’ option.

Finally, there are hundreds of different home insurance options out there, so make sure you shop around rather than go with the first deal that comes your way. And remember, ‘cheapest’ doesn’t always equal ‘best’ – so always read the policy small print and carefully weigh up what’s right for you and your home.