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What is Building Insurance?
We have all heard of building insurance and most of us don’t have a particularly good view of it or consider it a necessary evil. In simple terms, insurance is a risk transfer mechanism; someone (The policyholder) pays someone else (The Insurer or Underwriter) a sum of money (The premium or consideration) in return for a policy, which will provide a payment if an event (usually something unfortunate and unforeseen) happens to the item, which is the subject of the insurance. Perhaps you worry about your home being broken in to or being damaged in a flood or your car being involved in an accident. What would you do if you were suddenly faced with a large bill to replace or repair your belongings?
Insurance can provide you with peace of mind as well as help remain financially secure. In simple terms insurance works by insurers pooling money from policyholders and then paying out to those that are unfortunate to suffer a loos. The balance of any money left over is the insurers profit. Insurers are very adept at calculating premiums and usually aim to write a pool of homogenous risks, here they can apply the law of large numbers, insuring similar risks enabling them to accurately predict claims and of course calculate competitive premiums for the policyholders. Risk is present where ever humans cannot control or foresee the future. Usually when offering an insurance policy the insurers offer a range of perils, which are seen as the most likely events to occur.
Probably the biggest investment in your life with be your own home, it is important to protect this asset by buying a Buildings Insurance Policy and of course to satisfy the terms and conditions of your mortgage which will undoubtedly require you to take out an Insurance policy and name the lender in the schedule to satisfy the Contract rights Act 1999. Your lender will use your property insurance uk insurance policy to protect the amount of money advanced to you to secure the purchase. For Insurance purposes, the “ Building” is defined as follows:- The home, the main structure of the property, it’s permanent fixtures and fittings, patios, terraces, hard sports courts, sunken swimming pools, ornamental ponds, fountains, cesspits, sceptic tanks, central heating fuel tanks, paths, drives, walls, gates, fences, railings and lampposts all contained or within the boundaries of the land of the address provided to the insurance company.
How much do I insure The Building for?
You should insure your Building for its full reinstatement value, that basically means the total amount it would cost to rebuild the property in them event that it was totally destroyed. If you have a mortgage on the property your lender will normally give you advice on this matter. If you have no mortgage, you can calculate rebuilding cost using the following tool as provided by the Association of British Insurers. It is vitally important that you calculate your sum insured accurately, in the event of a total loss, the sum insured is the maximum you will receive. In the event of a partial loss, your insurers may apply an average clause, which will have the effect of reducing the value of a claim in proportion to the amount of under insurance.
A lot of confusion surrounds the sum insured for insurance purposes,; the market value of your home or indeed the Council Tax band valuation have no direct relationship to the cost of rebuilding of your home. It is difficult sometimes to grasp that a home for example in central; London may cost a huge some of money yet in view of its size, the reconstruction cost may be a small fraction of the selling cost. Similarly, in remote areas, the cost of rebuilding may actually be more then the selling cost. If you are in any doubt as costing a rebuild of your home, remember, always seek professional advice.
Index linking is a method employed by insurance companies to help ensure that the charge for a rebuild of your property is increased in sufficient amounts to guard against under insurance. Almost all insurance companies include index linking as part of their policy as it is usually a requirement of lenders etc. It is worth remembering that no amount of Index Linking will protect your property against underinsurance if your sums insured are incorrect at the out set. Remember as well to tell your insurer if you make improvements to your home such as add an extension, add a loft conversion or carry out any work that increases the redevelopment cost of your property.
Most buildings are sold on a freehold basis, this in simple terms means you own the land the property stands on as well as the structure of the property yourself. This will give you the right to arrange your own Buildings Insurance Policy, subject to contractual considerations. You are free to accept a policy from your lender but you probably save money if you shop around and find the best deal your self. Remember, the insurance contract you purchase most be acceptable to your lender but nowadays most policies on sale confirm to lenders conditions.