Home Insurance Terms Explained
Like many business, home insurance is filled with specific terminology - and we all know how horrible it can feel to be struggling with a concept not because it is really difficult to understand, but simply because we haven't regularly used the words. It is easy for those in the business to forget that no everyone speaks the lingo and miscommunicate or confuse without meaning to.
Here to help you is a guide to some of those words and what they really mean:
Insurance is the product you buy from the insurance company, or insurer. It’s a promise, or guarantee, that should certain agreed conditions occur, the insurance company will provide an amount of financial compensation to you, the policy holder.
For this, you pay a monthly or yearly amount, called a premium.
With home contents insurance, you pay a premium to insure your possessions so that should they become stolen, lost or damaged, you will receive a payment from the insurance company to replace them. It doesn’t, however, cover the house itself - only the items within.
Home buildings insurance is a separate arrangement that covers damage to the building structure. It does not protect your possessions in the building.
Your insurance premium is the amount you pay to the insurance company. Premiums are paid either monthly or annually.
Keeping premiums low is important for most people, and is done by doing everything possible to reduce the risk for the insurance company. For example, with home contents insurance, your premium will be much lower if you have a good home security system installed.
Calling our advisors is part of the path to paying lower premiums, as they are able to sift through the market and find the best quote to match your specific needs.
Sum Assured / Sum Insured
The Sum Assured (sometimes called the sum insured), is the total amount of insurance you have - thus the maximum compensation that you can claim from the insurance company if anything happened.
The sum assured for your contents insurance will be the replacement cost for all your items combined.
The sum assured for your buildings insurance will be the amount it would cost to rebuild your house, should it be destroyed.
The greater the sum assured, the higher the premiums.
All insurance policies have an excess amount. This is the amount you are willing to pay before the insurance company steps in. For example, if you had a table worth £1200 that became damaged, and an excess set to £150, then you would pay the first £150 towards its replacement, and the insurance company would cover the remaining £1050.
There are two types of excess – compulsory excess which is set by the insurance policy (which you have no control over), and voluntary excess which is set by you. You add the two values (compulsory plus voluntary) together to get the actual excess amount.
Choosing a higher voluntary excess amount shows your insurance company that you are willing to take on more of the risk yourself, and will therefore result in lower premiums.
Be sure to set your voluntary excess to a figure you are happy with – it is all too tempting to set a high voluntary excess amount to lower the premiums only to realise later on that you have effectively nullified your insurance. For example, if you set an excess of £300, then any item you own which is worth £300 or less is essentially no longer insured by your contents insurance – it is, in fact, insured by you!
Set the voluntary excess to an amount you are realistically willing to pay and able to afford, but keep it realistic.
Term is the length of time your policy lasts for – once the term is expired, there’s no more insurance (and you are no longer paying premiums).
Most home insurance policies have a minimum term of one year, meaning it’s hard for people on short term rental contracts to obtain home contents insurance, but most good advisors will help you find a home insurance policy that’s right for you.
Underwriting is a confusing word but has a simple meaning: it’s the criteria used by the insurance company to decide how much your premiums should be, and why.
For example, the underwriting may state that people in the city centre should pay 15% more on their premiums due to the higher concentration of burglary in the area. There may be a clause in the underwriting which states that homes with pets need to pay more for accidental damage, or that having movement-activated external lighting on the property lowers the premium by 2%.
If your needs are complex and specific, often an advisor will make a direct call to the underwriter on your behalf to discuss those details and come to an arrangement.
The specifics of each insurance company’s underwriting are a secret they keep to themselves, but advisors have excellent knowledge as to which provider is best for different circumstances – and they’ll use that information to get you the best possible insurance quote.