Home Insurance: Underinsurance, Escape of Water and Occupancy

Home insurance is two products in one document. Buildings covers the structure; contents covers what is inside. They fail in different ways, and the failures are quiet: not a refused claim so much as a settlement that arrives smaller than expected.

Underinsurance is the most common expensive mistake

The sum insured is a declaration, not a cap you can safely underestimate. If the figure is below the real replacement cost, insurers are entitled to reduce a settlement in proportion to the shortfall, and that reduction applies to any claim, not just a total loss.

Declare contents at half their real value and a fire that destroys one room can be settled at half. The claim was valid, the arithmetic was not, and there is no argument to have because you supplied the figure.

Buildings is the one people get most wrong, because they insure for market value rather than rebuild cost. Those are different numbers and in some areas they diverge sharply in either direction. Rebuild cost is what matters, and a rough figure is available from published calculators or from a surveyor for anything unusual.

Contents underinsurance usually comes from forgetting the accumulation. Nobody owns much individually and everybody owns a houseful, clothes, kitchen, tools, bikes, instruments, a decade of accumulated electronics. Walking room to room with a notepad reliably produces a figure double the guess.

Escape of water causes more claims than fire and theft together

It is the unglamorous risk and the dominant one: a failed joint, a burst pipe, a leaking appliance, a slow leak under a floor. The damage is expensive because it is structural and because it is often discovered late.

Two clauses matter. Whether trace and access is covered: the cost of finding the leak, which can mean lifting floors and cutting into walls, and whether gradual damage is excluded, which it commonly is. A slow leak found after months may fall outside cover for that reason.

Also check whether the policy requires the water to be turned off and the system drained when the property is unoccupied in winter. That is a condition, and it is checked.

The occupancy clause, which voids more policies than any other

Almost every home policy limits how long a property may stand unoccupied — commonly thirty to sixty consecutive days: after which cover reduces sharply or lapses entirely. It is not a warning; it is a term.

It catches ordinary situations. An extended trip, a hospital stay, a property left empty between a move and a sale, a second home used seasonally. In each case the answer is to tell the insurer, who will usually extend cover for a fee or with conditions.

A property under renovation is the other version of the same problem. Building work above a modest value is generally excluded unless declared, and a policy that has not been told is a policy that may not respond.

Letting a room or the whole property changes everything

An ordinary home policy assumes owner occupation. Letting the property, taking a lodger, or running it as a short-term holiday let all change the risk and generally fall outside the cover as written.

Letting the whole property needs a landlord policy, which is a different product with different liability provisions. See the separate page on that.

A single lodger is sometimes accommodated on a home policy by endorsement and sometimes not. Ask, because the difference between an endorsement and an assumption is the difference between cover and none.

Accidental damage, and what a specified item means

Accidental damage is usually an optional extension rather than standard, and its absence is why a foot through a ceiling or paint on a carpet is often uncovered. Whether it is worth adding depends mostly on whether there are children or pets.

High-value items generally need specifying individually above a single-article limit, which is frequently lower than people expect. An engagement ring, a bicycle, a laptop or a musical instrument can each exceed it on their own.

Check whether cover extends away from the home. Personal possessions cover is normally a separate option, and without it a phone lost in a city is not a home insurance claim.

What to do at renewal

Revisit the sums insured rather than rolling them forward, because rebuild and replacement costs have moved considerably and a figure set five years ago is almost certainly too low now. That is the single highest-value ten minutes in this policy.

Then check the excess total, the accidental damage option, and whether anything new needs specifying. And never auto-renew unchecked: the renewal notice shows last year's premium for exactly that reason.

See the clauses common to every policy, what changes when a property is let and whether a bike is already covered.

Frequently asked questions