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Household insurance

This article was last updated by the author in October 2016.

A brief introduction to household insurance.

Contents

Overview

Household policies are package policies. They combine, within a single document, a range of different covers; such as damage to the insured's own property together with legal liability for injury to others or damage to their property. There are a variety of different household packages available, including:

  • buildings only policies
  • contents only policies
  • buildings and contents insurance together within one policy
  • combined policies covering buildings and contents, plus a range of optional extensions (such as personal possessions and freezer contents).

Many insurers have rebranded these products as home rather than household insurance policies.

Apart from the typical cover described here, specialist policies are also available; for example, for home workers and holiday homes.

Typical cover provided

Buildings

The buildings section of a household policy is designed to cover the structure of the home including additional elements, such as walls, fences, paths and driveways, garages, outbuildings and fuel storage tanks. The term 'buildings' is specifically defined in the policy wording.

All insurers provide cover for damage caused by a range of perils, including:

  • fire, lightning, explosion and earthquake
  • riot, civil commotion, strikes, labour or political disturbances, malicious damage or vandalism
  • storm and flood
  • falling trees or branches
  • escape of water or oil
  • theft or attempted theft
  • impact
  • subsidence, ground heave or landslip
  • falling television or radio receiving aerials, their fittings and masts.

A number of other items are automatically included in the cover provided, such as:

  • accidental damage to services
  • accidental damage to fixed glass and sanitary fittings
  • legal fees, architects' and surveyors' fees and debris removal costs incurred following damage to the buildings
  • loss of rent or the cost of alternative accommodation
  • repairs to plumbing after freezing
  • repair of damage following forced emergency access
  • sale of the home, giving the purchaser the benefit of the insurance up to the date of completion
  • replacement of locks following loss or theft of keys
  • the cost of tracing leaks following an escape of water causing damage to the home

Contents

The contents section of a household policy covers any household goods and personal possessions belonging to the insured or members of their household or for which they are legally responsible. Certain items of property are specifically excluded, such as securities, certificates and documents and livestock and pets.

Tenant's fixtures and fittings and a limited amount of business equipment are also covered, where applicable.

Insurers usually place limits on single articles of value (between £1,500 and £2,000), the total amount of valuable items (one third of the contents sum insured or a fixed amount of £7,500) and money (£300 - £750).

The perils covered are largely the same as those covered by the buildings section, subject to minor variations in the wording. The main difference is in relation to theft cover, where loss of money or credit cards and loss or damage while the home or any part of it is let or sublet, must involve the use of force and violence.

A number of other items are automatically included in the cover provided:

  • temporary removal of contents
  • contents in the garden
  • accidental damage to the contents during household removal
  • accidental damage to fixed glass and mirrors
  • accidental damage to entertainment equipment
  • the cost of alternative accommodation following insured damage
  • loss of heating fuel or metered water
  • the cost of replacing external door locks and keys, following the loss or theft of keys to the home
  • temporary increases in sums insured to cover, for example, wedding gifts and gifts and food bought for Christmas or other religious festivals
  • loss of title deeds.

Cover is most commonly provided on a 'new for old' basis where the full cost of replacing the property as new is paid, subject to the limit of the sum insured. Sums insured are usually index linked, so that they rise in line with inflation.

Legal liability

All buildings and contents household policies automatically include liability cover.

The buildings section covers liability arising out of owning the home, including liability incurred under the Defective Premises Act 1972.

The contents section covers liability arising out of occupying the home. The insured's personal liability as a private individual, liability as an employer of domestic servants and liability as a tenant, where applicable, are also covered.

A limit of indemnity (typically £2 million) applies to any one claim. If the claim involves an employee being injured or falling ill, the limit of indemnity is usually increased to £10 million.

Optional extensions

Buildings and Contents

The main optional extension to buildings and contents cover is full accidental damage cover.

In addition, there are a range of optional sections of cover which can be added to a household policy, including:

  • personal possessions: all risks cover for personal possessions regularly taken outside the home
  • money and credit cards: accidental loss of money and/or loss due to fraudulent use of credit cards
  • pedal cycles: accidental loss of or damage to pedal cycles and accessories
  • sports equipment: accidental loss of or damage to sports equipment and specialist sports clothing
  • frozen foods: loss of or damage to frozen foods due to a change in temperature or contamination by freezing agents
  • legal expenses: the legal costs involved in taking legal action against third parties or defending claims against the insured
  • home emergency: the cost of call out, labour and parts in the event of a home emergency
  • assistance services/emergency helplines: 24 hour helpline covering legal advice and emergency assistance with repairs.

Key exclusions

Each of the perils and extensions are subject to specific exclusions. Monetary limits also apply to many of the policy extensions.

In addition, there are exclusions which apply to all sections of a household policy:

  • war risks
  • radioactive contamination
  • sonic bangs
  • pollution
  • terrorism
  • failure of computer equipment to recognise the true calendar date
  • confiscation of property
  • deliberate acts
  • existing damage which arose before cover started

Rating factors

The rating of household policies is based on the assessment of a wide range of risk factors. The most significant of these is the postcode of the risk address, as statistics can be used to predict the likelihood of loss. Other risk factors include the age and occupation of the insured; age, use and construction of the property; security; previous claims; and insurance history.

Premiums are calculated by applying a rate to the buildings and contents sums insured.

Alternatively, some insurers offer policies which are rated on the number of bedrooms. Cover is automatically provided for a specified amount: typically £500,000 to £1 million for buildings and £35,000 to £75,000 for contents.   

Product providers

The market for household insurances is very competitive. Insurers will attempt to differentiate their product from that of their competitors by variations in premiums, cover provided and the terms and conditions applied.

There are a wide range of suppliers, including traditional intermediaries, banks, retailers and insurers selling direct to the public. It is increasingly common for household insurance to be purchased over the internet, including through aggregator (price comparison) websites. The insurance industry is also in the early stages of engaging with new technologies such as smartphone apps, Facebook and Twitter. This has mainly been as a customer service, communication, relationship building and marketing tool, although some also offer the facility to purchase and service policies. 

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