Buying versus Renting – Insurance factors |
Buying versus renting: home insurance or tenants? insurance?
Making a decision between buying a home and renting a property often comes down to your budget and whether you can afford mortgage payments or rent. However, one factor that should not be overlooked when assessing what you can afford is home insurance, which differs widely depending on whether you?re buying or renting.
What is home insurance?
As your home and its contents will usually be the biggest investment of your life, it makes sense to protect them ? and this is where home insurance comes in. Generally, home insurance is divided into two areas which can either be bought separately or combined into a single policy:
– Buildings insurance: Covers the structure of your home and its permanent fixtures and fittings. Many policies will also include underground pipes and cables; outbuildings; and glass in doors and windows. Typically it will protect against risks such as floods, fires and subsidence.
– Contents insurance: This is for the possessions you keep within a home including electrical items, household goods, furniture and valuables. Typically it protects them against risks including theft, fire, water leaks and more.
Most policies cover additional areas of protection such as accidental damage, legal expenses cover and home emergency cover. They may be included either as ?standard?, meaning they are automatically incorporated into the policy; or as ?optional extras?, meaning they are available for an additional premium.
So what is the difference between home insurance and tenants? insurance?
Tenants? insurance works in the same way as home insurance but is effectively a stripped down version that just incorporates what tenants need.
For example, as a tenant you will not normally need to take out buildings insurance as the home itself is never yours ? therefore, it is the responsibility of the landlord. If you are renting an unfurnished property however, you?ll need tenants? insurance to protect the items you keep within a home against events such as fires, flooding and theft. Even if your property is furnished you may still want to take out tenants? insurance to cover your personal possessions.
How much cover do you need?
The sum insured is the amount you insure a property for and is the maximum amount your insurer will pay out in the event of a claim. Homeowners should calculate the rebuild value of their home ? i.e. what it would cost to rebuild if it was destroyed by fire. Many homeowners make the mistake of insuring the market value of the home ? but this is over-insuring, because home insurance does not cover the land, etc.
For both homeowners and tenants, the best way to work out how much to insure their contents for is to make a list of all their possessions and their costs, room by room. Most insurers set a maximum amount per article ? usually in the region of £1,500 ? so you may need to take out additional cover for valuable items such as jewellery and artwork. While calculating the value of the contents of your home can be time consuming, it is vital you don?t underestimate or you could be left out of pocket when it?s time to make a claim.
Is there anything to watch out for?
Irrespective of whether you?re a homeowner or tenant you should examine the terms and conditions of a home insurance policy carefully and look for:
– Exclusions: These are circumstances in which you will not be covered. For example, your claim will be affected if you are burgled after failing to leave a burglar alarm on.
– Excess: This is your contribution to a claim and is divided into a ?compulsory excess? set by the insurer and a ?voluntary excess?, which is an additional amount you agree to pay in case a claim is ever necessary.
How much will home insurance cost?
The price of home insurance depends on risk-based pricing ? i.e. the more likely you are to make a claim, the higher your premiums will usually be. This can be affected by factors such as the address of the property, your personal details and the home?s security features; and if you?re a homeowner, the construction of the walls and roof and the rebuild cost.
Here are some tips to reduce premiums ? firstly for homeowners only:
– Buy buildings and contents together: Combined policies are usually cheaper than buying separately.
– Increase security: Invest in burglar alarms, approved locks on external doors and key-operated window locks to reduce the risk of theft. Time-switch lights and security lighting may also help to reduce premiums.
– Reduce fire risk: Invest in smoke alarms and fire extinguishers in your home.
For tenants and homeowners:
– Assess your level of cover: The more cover options you add to a policy, the more expensive it will be.
– Buy online: Most home insurers offer discounts if you buy online. Consider using a comparison website to compare as many policies as possible.
– Consider joining a Neighbourhood Watch scheme: You may earn a discount of up to five per cent.
– Raise voluntary excess: This will increase your contribution towards a claim but will usually lower premiums.
