Home Contents Insurance – Is It A Good Idea?

A report by the British newspaper The Daily Telegraph conducted in January 2011, revealed that 6.8 million homes across the United Kingdom are thought to be underinsured, while as many as one in five people in the United Kingdom have no home contents insurance cover at all.

Worse still, a leading poverty website, www.poverty.org.uk has revealed that households with no contents insurance are three times more likely to be burgled than the homes of those people who do have adequate cover in place.

Yet there is a definite trend, in these trying economic times for everybody, for the average consumer to cut costs wherever possible and it seems that insurance, specifically contents insurance is where many people are trying to save a bit of money each month to spend on other things.

The question is; is this frugality a sensible decision, or are they running the risk of losing out in the long term?

In order to answer this question more fully, let’s start with the basics:

What is contents insurance?

Contents insurance, as the name suggests, is a form of insurance cover that protects the belongings of an individual, or the people living at home with that individual, against loss through any number of different circumstances. This can include items being stolen, damaged by flood or fire, lost or stolen outside of the home and some policies can cover accidental damage to items too.

The insurance is paid either annually, as a single lump sum, or monthly (usually via a bank transfer or direct debit from the policyholders account).

How much contents insurance you need to pay depends on two very important factors; firstly is the area in which you live. This is because certain parts of the world, or even your local area, are more prone to theft or fires than others and your insurance company will assess this risk before they offer you a policy.

The second factor is the value and type of items you wish to insure. In general, the more you value your items at, then the more expensive the cover is likely to be.

How does contents insurance work?

Depending on the terms of your policy, contents insurance works thus; if you lose an item through fire or flood for example, or have items stolen from your home, then you would contact your insurer to make a claim.

Your insurer will take down the details of your claim and investigate it. Usually the insured person has to pay an amount of money towards the cost of the replacement value of the item (this is called an ‘excess’ and the amount of excess you pay depends on the terms of your policy). The insurer will then cover the rest of the claim, reimbursing you with the cash to buy a replacement.

So, for example, say you have your brand new £500 laptop stolen from your bag and you check the terms of your cover and you are covered for this eventuality but must pay an excess of £100. You contact the insurer who will take down a few details and investigate the claim. If they are happy they will check out the terms of the claim before forwarding you a cheque for £400, which with your £100 would make up the full value of the laptop that was stolen.

Is contents cover worth the expense?

If you live in an area that isn’t prone to break ins, or you feel that the last policy you paid for offered you no value, then it can be tempting to assume that you probably don’t need contents insurance. Obviously, this is a decision only an individual can make and be prepared to live with the consequences, but in almost every sensible case, ensuring you have adequate contents insurance is a very wise move.

There are certain things to note about this however. The first thing, as the statistics showed from the report in the Daily Telegraph, many people may have drastically underestimated how much contents insurance they need. Too many people do not take into account their own particular circumstances and are happy to go with an estimate from the insurer as to how much their contents are probably worth.

Yet it is important to realise that this may no longer be the case. An insurer may value your entire home contents at £20,000 and offer you a great premium at that price. It is a tempting offer, but you need to check whether it really is of good value.

A sum of £20,000 does not represent a huge amount of content for someone who may have lived in a home for many years, or who has several family members living with them. If you take a living room for example and add up the cost of everything inside that room, other than the building itself, carpets, pictures, wallpaper, electronic equipment, furniture, three piece suites, light fittings, tables, soft furnishings and other decorations, you will quickly discover that the cost of this quickly approaches £10,000, or goes well beyond it.

Then you need to consider the other items in other rooms, your kitchen, dining room, bedroom, home office, kids bedrooms, garage and any outbuildings or sheds you may have. Suddenly £20,000 for all your home contents, should they be lost in a fire, seems a paltry amount.

So yes, home contents is a very good idea to have, but only if you are prepared to undertake a sensible amount of research to realise the amount of cover that you actually need and to take a clear interest in the terms stated in the policy to ensure that it matches your demands and that there are no glaring omissions (such as companies not offering cover for any personal items taken out of the home, or stolen from a car for example).

The peace of mind that adequate and comprehensive contents cover with a reputable provider can give you is often worth the price of the policy alone.