When it comes to financing your house, a home insurance policy is usually a necessary requirement of your mortgage lender. Like you, they want to protect the value of the home, or asset, in the event of a casualty that would result in damage. A homeowners insurance policy would cover the cost to replace the home as well as replace the contents/personal property within the home.
However, when purchasing home insurance, it is very important to understand the different components, such as buildings insurance and contents insurance. Furthermore, you should know about the levels of cover available to you to help you decide what will best suit your situation.
Home insurance can be broken down into two components, buildings insurance and contents insurance. Generally speaking, buildings insurance covers the cost of rebuilding or repairing your home’s structure if it is damaged or destroyed by an event covered by your policy, whereas contents insurance covers the cost of replacing specified goods. Consumers are often required to purchase home insurance as a condition of obtaining their mortgage, however, they are under no obligation to buy it from their mortgage provider.
When choosing home insurance, there are generally two options available. Consumers can choose to specify ‘perils’, meaning that the policy holder will only be covered for damage caused by those events specified in the contract. Alternatively, choosing the ‘accidental damage’ option covers consumers against any accidental damage, so long as the damage is not excluded by the policy terms. This highlights the importance of consumers understanding thoroughly the terms of their contract, so as to avoid disappointment and confusion when making a claim.
No matter which kind of home insurance you should choose, it often depends on the circumstances of the individual. Accidental damage cover is likely to be the more costly, but may be the better choice for those who are more liable to damage and need greater cover, for example people with expensive and fragile possessions. Nevertheless, it remains a strictly individual decision because some ‘specified perils’ policies include accidental damage cover for certain items too.