FOOL SCHOOL
Insuring Your Home

November 1, 2004

So you're a house owner are you? That mock tudorbethan gothic pile in Elmwood Close, off Treewood Drive, off Golfcourse way? Well, your name is on the mortgage, but the deeds are firmly held by the Chipping Sodbury Building Society and they'll probably make it a condition of the mortgage that you have house insurance.

Your interest is in making sure that the value of the house stays higher than the mortgage. In the normal course of events that should not be too difficult, a coat of paint now and again and it'll be fine as long as nothing disastrous happens. Uh oh, but what if something does? Then you owe a lot of money on something that isn't worth very much. Even if you don't owe money on the house it is probably still your largest single asset and something you could ill afford to lose.

But we shouldn't be panicked into insuring everything willy-nilly. First we need to divide up the assets and then assess the financial impact of losing any one of these items. In some cases the consequences are dire, in others less so.

Purchasing a house actually consists of two elements: buying the land the house sits on and the actual structure itself. Afterwards we fill it with our goods and chattels. So in the case of house insurance there are two things we need to consider:

• The Land
• The Structure

The Land

Although the biggest part of the value of a house is the land, normally we don't need to insure it. It is usual practice to survey a house before purchase. So even if we hadn't spotted that the house was on a cliff falling into the sea, or built over an old mine, the surveyor should. Consequently we ought to be able to minimise the need for expensive insurance by being selective in where we buy. Insurance companies have a pretty good database on areas with problems with ground conditions now, right down to the postcode, and that narrows it down to about 15 houses. Claims for subsidence damage actually peaked in 1992 at £540m when a very dry summer caused ground problems. That can be exacerbated by trees growing close to a house, because they draw a lot of water. That oak tree outside the front might look nice but it could cost you money. Cut it down and plant an acorn further away.

The Structure

The second part of the insurance package is the house itself, the actual structure. To some extent this can be linked in to ground problems. After all if the ground starts to move it would be surprising if the house didn't. Some areas will be more prone to this than others, and the insurers will know by your postcode. Another geographic feature that will affect insurance premiums is the risk from flooding. Apparently 1.8m homes and businesses are in areas with risks of flooding. Avoiding buying one of these will make life easier and cheaper. Once bought there is not a lot you can do to reduce the risk from flooding. Just make sure you keep the policy dry. Other weather-related damage comes from storms and that can affect almost any area from fences being blown down to losing your roof.

There is the risk of something falling out of the sky and damaging or demolishing the house. That could be a meteorite, part of an aeroplane or the Mir space station. Whatever it is it could make a real mess of your house and ultimately cause it to be knocked down and rebuilt. Fortunately the Association of British Insurers has a neat little online calculator to enable you to get some idea of how much it would cost to do that, and takes account of the property's age, material, location and style. But you'll need to know the floor area, so find a friend and ask him or her to hold the other end of a tape measure to work it out. Or else just dig out your original survey as this should state the number of square metres you've got. Then just plug the numbers into the calculator, enter the relevant information and away you go.

A bigger and more common danger is fire and a major cause of that is chip fat catching alight. Others include leaving a cigarette unattended and faulty wiring. It obviously makes sense to fit a smoke detector. Damage to the family home can also occur more slowly from organic infestations such as beetles, fungus, dry rot, wet rot and so on. Treated early and professionally they shouldn't be a threat to the house.

If you're currently insured via your mortgage lender, you're probably paying over the odds. Usually they'll let you find a different insurer if you pay them a small fee to do the paperwork. You'll have to send them a copy of your new insurance certificate though to prove you are covered but it's worth the effort as the savings can be considerable.

If you're renting, you'll usually find the landlord is responsible for insuring the building -- but check the terms of your lease to make sure!

Get an online quote in our insurance centre.