Building versus contents insurance explained

Household cover offered by insurance companies normally comprise two separate categories: building insurance and contents insurance.

For insurance purposes, a building is generally defined as the main structure of your home, including all domestic outbuildings such as garages, greenhouses and garden sheds. Also included in the building category are walls, gates, fences, paths, drives and swimming pools. Permanent fixtures and fittings in your home, such as a fitted kitchen and built-in bedroom closets, are also included. Buildings insurance will usually provide cover against subsidence, as well as loss of rent, accidental damage to service pipes, cables, glass in doors, windows, skylights, and bathroom fittings such as wash basins, toilet fittings, and the bathtub.

Bear in mind that for buildings, the “sum insured” should meet the cost of rebuilding your property, which may be very different from the market value of your property. Buildings insurance also covers associated costs, such as professional fees for an architect, and the cost of removing debris. Most insurers will help you calculate the rebuilding costs, and will also make sure that these costs are index linked.

Contents insurance covers your furniture, furnishings, household goods, kitchen equipment, vacuum cleaners, other appliances, food and drink, TVs, videos, computers and audio equipment, clothing, personal effects and valuables such as jewellery and cash, up to the stated limits. Different insurers may place different limits on the number of high-value items covered. Alternatively, they may require that high value items are individually declared (“specified”), whereby you will pay extra for their inclusion on the policy.

Your contents are usually covered on a “new-for-old” basis, so that you will be paid the full cost of repairing damaged articles, or the cost of replacing stolen or destroyed articles with equivalent new articles. Contents insurance includes legal liability as occupier, and the cost of temporary accommodation for the period that the house is uninhabitable following an authorized insured incident. Most contents policies also cover the personal legal liability of the policyholder and members of his/her family for accidents they may cause.

Both the Buildings and the Contents will be covered for loss or damage as a result of number of “perils” that generally include: fire, smoke, lightning, explosion, theft, storm, flood, burst water pipes, earthquake, impact, riot and malicious damage. If you live in an area prone to flooding, make sure that you are covered.

Some insurers calculate the sum insured for contents as a percentage of the sum insured for the buildings. If necessary, you may consider conducting your own audit. Remember: if you underinsure, your claims may not be paid in full. If you over-insure, you will pay more than you need.