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Is contents insurance mandatory?

| Insurance

When you start searching the market and comparing prices for home insurance, you’re likely to come across contents insurance. This is often bundled in with home insurance or offered as an add-on. But is it mandatory to get contents insurance? If not, is it still a good idea to take out a policy?

In this article, you’ll find out more about the variations between different types of home insurance, whether contents insurance is mandatory and how it could potentially benefit you and your family.

Is home and contents insurance compulsory?

When you apply for a mortgage in the UK, the lender will usually insist that you have the appropriate level of home insurance. The important thing to remember is that when the term home insurance is used in this context, it usually means buildings insurance. This is a policy that covers the structure of your home, not the contents inside. 

Lenders make buildings cover mandatory so that they can protect their investment. In some cases, the mortgage lender will specify insurers you can use from their own list. You’ll need to get this kind of home insurance sorted by the time you exchange contracts on the property, if not earlier.

Contents insurance is a different kind of policy. Unlike buildings insurance, which covers the structure, it focuses on protecting the belongings kept inside. Contents insurance cover isn’t compulsory, and it isn’t required by mortgage lenders. However, it can still be worth having.

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Understanding the differences between buildings and contents cover

When deciding which level of cover you need, it’s important to know the differences between policies.

Buildings insurance covers the cost of repairing the structure if it is ever damaged or destroyed in a fire, flood or other disaster. It is based on the value of your home and how much it would cost to fully rebuild - including demolition, site clearance and architect’s fees, as well as replacing sheds, garages, pipes and cables. Every aspect of rebuilding is taken into account.

When getting quotes for this type of home insurance, it’s crucial that you get the right level of cover. Underestimating the amount it would cost to rebuild your home could be disastrous if the worst should ever happen. It could leave you seriously out of pocket, having to pay the remaining rebuild costs once your insurance payout has been spent.

It’s very unlikely that you will lose your home in a natural or other disaster, but this after all is the purpose of insurance - to put a safety net in place, just in case.

To find out how much cover you’ll need on your buildings insurance, head to the Association of British Insurers’ website. It has a handy online calculator provided by the Building Cost Information Service.

Contents insurance, on the other hand, provides cover for all your possessions, from the TV in your living room to your laptop. It covers jewellery, artwork, clothing, furniture, soft furnishings, electricals and much more. It even extends to the Christmas decorations in your attic, and the tools stored in your garden shed.

If your home is affected by a fire, flood or burglary, it could cost a small fortune to replace all your belongings. This is where contents insurance comes in. You need to choose the right level of cover, approximating the total value of everything you want to insure - luckily, there are online calculators that can help with this. It can take time to properly assess the value of your home’s contents, and it’s recommended to itemise everything from room to room. But it is well worth doing.

If you suffer a loss, your contents insurance will cover the cost of buying a replacement. Insurance companies either use a ‘new for old’ system, where they pay out the current going rate for a new replacement, or an indemnity policy. This takes into account wear and tear, where the amount you’d receive for a damaged, destroyed or lost item is reduced depending on its age.

Do you have to get home insurance? 

Buildings cover is usually required by your mortgage provider, while contents insurance is not. However, many people prefer to have both types of cover in place, as it provides full protection against theft, fire, flooding and other kinds of catastrophe that could otherwise leave you out of pocket. It helps that many buildings and contents insurance policies come bundled together, which can make it easier to choose.

It’s also worth bearing in mind though that both building and contents insurance policies usually require you to pay an excess if you make a claim. You’ll need to choose carefully and make sure you’re comfortable with these excess charges before taking out the policy.

What happens if you don’t have contents insurance?

exposed wall with leaking pipes and water on the floor

Contents insurance is another household cost to pay, so it’s understandable to consider not bothering with it if it isn’t compulsory. But the crucial question to be asking is - could you afford to lose all of your possessions? Could you afford to replace them and if not, could you do without them? When deciding whether or not to get insurance, you need to think of possible worst-case scenarios. For example:

Your house is burgled while you’re on holiday and the laptop you use for work is stolen
Most of your possessions are destroyed in a fire - leaving you with no bed to sleep on, no oven to cook food in and no clothes to wear
You live in a flood risk area - this makes it more likely that the possessions on the ground floor at least could be damaged or destroyed by flooding.

These are of course extreme examples, but scenarios such as these can and do happen. According to the Association of British Insurers’, the average home (in 2018) had contents worth at least £35,000. Your home could be similar, which is why it is well worth getting quotes for contents insurance. It could turn out cheaper than you imagine, especially when bought alongside buildings insurance.

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