Home Insurance Terms to Know Before You Buy a Policy

Key things to know

1. The buildings sum insured should reflect the cost of rebuilding your home, not its market value; bedroom-rated policies set this figure for you based on bedrooms and property type.
2. New for old pays to replace items with new equivalents, while indemnity settles at second-hand value; wear and tear is not covered on either basis.
3. Excesses, single item limits and trace and access limits all cap what a policy pays, so check each figure rather than assuming the main sum insured applies.
4. Underinsurance tends to be discovered at claim time, when an average clause can reduce the payout in proportion to the shortfall.
5. Endorsements, exclusions and conditions precedent can change or limit cover, so read the policy schedule before you buy.

Buying a home insurance policy means signing a contract written in its own language. Terms such as sum insured, indemnity and condition precedent have precise meanings, and the difference between two similar-sounding words can decide whether a claim is paid in full. This glossary explains the terms first-time buyers are most likely to meet, in plain English.

How the Cover Amount Is Set

Sum insured. The maximum the insurer will pay under each part of the policy. On buildings insurance it should reflect the cost of rebuilding your home, not its market value; contents insurance needs a figure based on replacing everything you own, new. Where one part stops and the other starts is not always obvious, so our guide to buildings and contents cover sets out the boundary.

Bedroom-rated cover. A policy where the insurer sets the buildings sum insured for you, based on the number of bedrooms and the property type, rather than asking you to work out a rebuild cost. It saves the arithmetic, but you should still check the assumptions behind the figure, such as the construction of the home, and tell the insurer if anything unusual applies.

Ground Movement: Subsidence, Heave and Landslip

Subsidence. The ground beneath the home sinks downward, taking the foundations and walls with it. Buildings policies usually include subsidence, but many treat it as a separate risk with its own excess and conditions, so read the wording before you buy.

Heave. The opposite problem: the ground swells upward and pushes the foundations from below.

Landslip. The downhill movement of ground on a slope, which can drag part of the property with it. Insurers generally group landslip with subsidence and heave, with similar conditions attached.

How Contents Claims Are Paid

New for old. A settlement basis where the insurer pays to replace a damaged or stolen item with a new equivalent, whatever its age. Most contents policies work this way, but not all, so check which basis yours uses.

Indemnity. A settlement basis that aims to put you back in the financial position you were in just before the loss. In practice, that usually means paying the second-hand value of an item rather than the cost of a new one.

Wear and tear. The gradual deterioration of belongings through ordinary use. Policies do not pay for it, because insurance covers sudden and unexpected damage, not the natural ageing of a sofa.

Accidental Damage: Check Whether It Is Included

Accidental damage. Cover for one-off unintended damage, such as a foot through the ceiling or paint spilled on a carpet. It is usually an optional add-on for both buildings and contents, so confirm whether your policy includes it or charges extra for it.

Excesses, Limits and Valuables

Excess. The amount you pay towards each claim before the insurer pays anything. Policies often have a compulsory excess set by the insurer and an optional voluntary excess you can add to bring the premium down. Our article on how insurance excess works explains how the two combine.

Single item limit. A cap on what the insurer will pay for any one item, most often applied to valuables. Anything worth more than the limit may not be fully covered unless it is declared separately.

Specified valuables. Individual items such as jewellery, watches, artwork or antiques listed separately on the policy, sometimes called floaters. Insurers often ask for evidence such as a receipt or a professional valuation.

Help When You Cannot Stay at Home

Alternative accommodation. Cover for somewhere to live, and costs above your normal spending, while your home is repaired after insured damage. Policies set their own limit for it, so check the figure rather than assuming it matches the buildings sum insured.

Trace and access. Cover for finding and reaching the source of a leak or escape of water, for example by lifting floors. Not every policy includes it, and where it does, the limit is often separate from the main cover.

Home emergency. An add-on that provides a call-out service for urgent problems such as burst pipes or a failed boiler. It sits alongside the main policy rather than replacing it.

Underinsurance and the Average Clause

Underinsurance. The gap between what the policy says it will pay and what it would actually cost to rebuild the home or replace the belongings. It is one of the most common reasons claims pay out less than expected, and it often builds up quietly over several renewals. Our article on underinsurance and why claims fall short shows how it happens.

Average clause. A term that reduces a payout in the same proportion as any shortfall in the sum insured. If the buildings sum insured is half of what a rebuild would cost, a partial-loss claim could be cut by half as well.

Watch for: Underinsurance is discovered at claim time, when it is too late to fix. Check the sums insured against your home and your belongings before you buy, and again at every renewal.

Endorsements, Exclusions and Conditions Precedent

Endorsement. A written amendment that adds, changes or removes cover. Endorsements can arrive at renewal even when the rest of the papers look unchanged.

Exclusion. Something the policy will not pay for. Common examples include gradual deterioration and deliberate damage, but every policy has its own list, so read it before assuming a risk is covered.

Condition precedent. A requirement the policy states you must meet, such as fitting specified locks, for cover to operate. If it is not met, the insurer may reduce or refuse a claim, so treat these lines as instructions rather than small print.

Before you buy, open the policy schedule, which lists your cover limits, premium and policy period, and look up any term on it you do not recognise.

Questions answered

Does bedroom-rated cover guarantee I am fully insured?
Not on its own. The insurer sets the sum insured from the number of bedrooms and the property type, so you still need to check the assumptions behind the figure, such as the construction of the home, and report anything unusual.

Is accidental damage included as standard?
Usually not. It is most often an optional add-on for both buildings and contents cover, so check the policy before you buy to see whether it is included or costs extra.

What is the difference between a compulsory and a voluntary excess?
A compulsory excess is set by the insurer and applies to every claim of that type. A voluntary excess is an amount you choose to add, which can lower the premium but increases what you pay when you claim.

What happens if my sum insured is too low?
If the policy includes an average clause, the payout can be reduced in the same proportion as the shortfall, even for a partial loss. That is why the sums insured need checking when you buy and at every renewal.