Home Insurance - The Jargon Explained

Financial products can be like minefields if you aren’t familiar with all the terminology. If you sit down with an insurer while he spouts off unfamiliar terms you can quickly be lost in a maze that, if you sign on the dotted line, you can’t get out of.

So it makes sense to familiarize yourself with the key terms before you shop around for home insurance. That way you can be more confident about finding the best deal and about avoiding the traps that could ultimately cost you money.

Let’s take a look at some of the key home insurance terms.

Helping you understand the home insurance key terms

There are several terms that you must be familiar with no matter which home insurance policy you choose.

The first is the term ‘policyholder’. This is the person whose name a policy is under – so if you are applying for home insurance then chances are this will be you. However, it is normally possible to take out a policy under two names - perhaps you and your spouse.

Make sure you know about the term ‘excess’ too. This is the amount you will pay in the event of an insurance claim. So if your house was burgled and contents to the value of £4,000 were stolen and you had a £1,000 excess, then you would pay the first £1,000 leaving your insurer to cover the remaining £3,000. The higher you set the excess the lower your premiums will be because your insurer will have to pay out less on a claim. However, setting the excess too high can backfire if you can’t comfortably afford to cover this amount should a claim take place.

Another important term is ‘material fact’. This is something that would influence the premiums or terms of the insurance policy. Effectively this means that you must be honest with your insurer because all the information you supply affects how it assesses your risk and therefore the premiums you are given. Failure to be honest can lead to a policy being invalidated.

Here is a quick rundown of some other key terms:

Endorsement: This is a change to the pre-written policy made to suit your individual circumstances.

Exclusions: These are the causes of loss or damage that a home insurer will not pay out for. For example many high risk homes will have flooding excluded from their policies meaning they will not get a payout if their home is flooded.

Insurance Premium Tax: This is a tax placed on general insurance premiums – most home insurers will include this within the quoted price.

Sum insured: The maximum amount payable in the event of a claim.

Terms and conditions: The clauses associated with a home insurance policy. You must read these thoroughly so you know you’re getting the right cover for you.

Wear and tear: Things that have deteriorated over time will not be covered by a home insurance policy.

Home insurance policy options explained

In addition to general terms, some of the policy options available can be confusing – you’ll need to know exactly what they are so you can select the cover that’s right for you.

‘New for old’ cover for example, is when a damaged item is replaced with a brand new item. So if your carpet fell victim to flooding then it wouldn’t matter if it was seven years old – you would still get a new replacement as long as you covered it on your policy. The opposite of new for old cover is ‘indemnity cover’ where the seven year old carpet would be replaced with another carpet of similar age.

There are several aspects of cover that you may or may not think are necessary for you. For example, ‘accidental damage’ cover refers to accidents caused by mishaps - such as a child running through the house and knocking an ornament off a shelf. However, most accidental damage cover only covers a limited number of items - typically the TV, stereo and fixed glass in doors. In order to get accidental damage cover for all risks, such as paint split on a carpet, you may need extended accidental damage cover.

‘Personal belongings cover’ is another aspect of contents insurance that refers to items taken out of the home. Taking out this cover with most insurers will entitle you to protection for items such as laptops even when they are away from your property.

If you’re not happy with the level of cover you receive, shop around for home insurance with a comparison website.