Millions of homebuyers are unaware of exactly when they need to have buildings insurance in place, new research has revealed.
Around 42 per cent believe they need this cover only when they complete a house sale, when in fact it is from the exchange of contracts. And one in 10 first-time buyers admitted to having no idea what it was when they bought their first house.
Buildings insurance, unlike contents insurance, is designed to cover the structure of your property along with anything fixed in the house, such as the carpets, cables, drains, windows, and light fittings.
Confusing cover: 27 per cent didn’t spend any time researching a policy before they bought it
It covers the home if it’s damaged or destroyed, for example if there is a flood or a fire, and it should at the maximum cover the cost of rebuilding the property.
Contents insurance meanwhile covers everything you own, such as your furniture, clothes and any valuables.
But new research from LV, shared exclusively with This is Money, shows that many people are unaware of when to buy buildings insurance.
Those purchasing leasehold properties – typically flats – need to check during conveyancing who is responsible for arranging buildings cover.
Usually it is the freeholder, so in theory buildings insurance should already be in place – and the leaseholder will be billed for it annually once they have bought the flat.
For new-build leasehold houses, the lease is more likely to make the leaseholder responsible for the buildings cover.
When buying a house you’re responsible for getting buildings insurance in place at the point when you exchange contracts, and if you sell a house you need to have cover in place until the sale is completed.
This means for a certain period of time there will be two insurance policies in place. According to LV if something happens to the property in this time, it is usually the seller who will be liable – as it will state in the buyer’s policy that they will only be liable if there is no other policy in place.
Therefore the reason it’s important for the buyer to have insurance in place when they exchange, is that the seller may not have it – and if they don’t the buyer will have to foot the bill if something does go wrong.
The survey of 3,000 people also revealed that many people don’t shop around when buying buildings insurance.
But prices can vary quite a bit and therefore to make sure you’re getting the best value for money it’s worth checking the price available from a few different insurers before you buy.
It also showed that people rarely do much research before buying buildings insurance and 27 per cent didn’t spend any time at all looking into policies before buying.
42 per cent of home buyers didn’t know you buildings insurance in place when you exchange
This means that potentially they could have the wrong type of cover, or a policy which doesn’t provide enough cover to pay out if the worst happened and they did need to have their house rebuilt.
Regionally, those in Sheffield were the most confused over the insurance, with 59 per cent not knowing then need it from the point of exchange, while 38 per cent said they did no research before they bought it.
While those in Bristol and Edinburgh are most likely to understand the cover, with 70 per cent knowing when they need to buy it.
When you buy a house it’s usually a condition of the mortgage to have buildings insurance in place, and some providers will ask to see this.
You are free to choose your insurer, and the insurance policy, but it’s important to make sure you have enough to cover the cost of rebuilding the property, including things like the costs of demolition, site clearance and architects’ fees.
Heather Smith, chief customer officer at LV= said, ‘It’s quite scary to think that such a large number of people don’t know they need buildings insurance at the point of exchange. Insurance is there to protect the things that matter the most to people and a dream home is definitely something that needs the right cover in place.
‘We understand that people’s houses aren’t just bricks and mortar – they are their homes – which is why we want to raise awareness of the need for having the right insurance in place to ensure that, should the worse happen, your home is protected.’
How to cut the cost of your policy
There are several ways to cut the cost of home insurance, here we’ve listed the top five.
1. Never auto-renew your home insurance
Insurers rely on homeowners forgetting to check their premiums each year and take advantage of this by increasing the price. While for new customers, the price is generally always cheaper and therefore by switching providers you could save some money.
If you’re coming up to renewal and want to stay with your existing insurer, check what price you’ll be quoted as a new customer and ask it to lower it. If it refuses, you’re free to move.
2. Make sure you’re covering the rebuild value
When buying home insurance it needs to cover the amount you would have to pay out to rebuild the house. If it doesn’t provide enough cover, you could be left short if you need to claim.
Similarly if the rebuild value is set too high you may be paying out too much. To work out how much cover you need, check with a rebuild calculator, such as the free one from the Association of British Insurers.
3. Paying monthly will cost you more
When you take out buildings insurance you can either pay for it in a lump sum straight away or via a monthly payment.
However, if you choose the monthly option interest will be added to the payments and you’ll end up paying more overall. If you don’t have the money to pay the upfront fee, a 0 per cent credit card may be a better bet – if you’re sure you’ll pay it off during the 0 per cent period.
4. Using a cashback website could cut your annual costs
If you shop via a cashback website, you could get a percentage of the cost back after you’ve bought the policy. For example, on TopCashback, if you buy an Aviva home insurance policy you could get up to £40 back while with Policy Expert it’s up to £150.
Typically you’ll be paid the cash around three months after you’ve bought the policy, and to qualify you’ll need to go to the cashback website first so it registers your visit.
5. Carry out measures to reduce theft or damage
There are a number of things you can do to lower the risk of damage, theft or destruction of your home, which could bring down the overall cost of your policy.
These include, fitting a burglar alarm, buying a safe, installing time-switch lights, joining a Neighbourhood Watch scheme, installing security lighting, and having approved locks on your doors and windows.