Guide

Buildings insurance explained: what it covers and what it doesn't

Buildings insurance is one of those things that most homeowners arrange because they have to and then never think about again. Your mortgage lender requires it, you find a policy, and it sits quietly in the background for years.

The problem with this approach is that when you do need it, which is exactly when you have suffered damage to your home, you discover that your understanding of what it covers was less accurate than you assumed.

This article explains clearly what buildings insurance is, what it covers, what it does not cover, and what you need to know to make sure you are properly protected.

What is buildings insurance?

Buildings insurance covers the physical structure of your home (the walls, roof, floors, ceilings, windows, doors, and permanent fixtures) against damage from a range of specified risks.

It is distinct from contents insurance, which covers your possessions inside the home. Buildings insurance covers the home itself.

Your mortgage lender requires you to have buildings insurance in place as a condition of your mortgage. This is because the property is their security: if the building were destroyed and you had no insurance, the lender's security would be gone. The requirement to insure the property protects both them and you.

What does buildings insurance typically cover?

Standard buildings insurance policies cover damage caused by:

• Fire, including smoke damage. If a fire damages or destroys your home, buildings insurance covers the cost of rebuilding or repairing the structure.
• Flooding. Water damage from external flooding (rivers, surface water, or storm-related flooding) is covered by most standard policies, though properties in high flood-risk areas may find specialist cover is required.
• Storm damage. Damage caused by high winds, heavy rain, and other storm events is typically included.
• Subsidence and heave. Movement in the ground beneath the property, typically caused by shrinking or expanding soil, tree roots, or changes in moisture content, can cause significant structural damage. Most policies cover subsidence, though claims can be complex and there is often a high excess.
• Escape of water. Damage caused by burst pipes or leaking water systems within the building.
• Impact damage. Damage from vehicles, falling trees, or aircraft.
• Vandalism and malicious damage.
• Theft that involves physical damage to the building, such as a door broken down during a burglary.

What does it not cover?

Understanding the exclusions is as important as understanding the coverage. Common exclusions include:

• Wear and tear. Buildings insurance covers sudden, accidental damage, not the gradual deterioration of a building over time. A roof that fails because it was old and poorly maintained is generally not covered. A roof damaged in a storm is. The distinction matters significantly for older properties.
• Damage you caused deliberately or through negligence. Policies do not cover intentional damage or damage resulting from failure to maintain the property adequately.
• Flooding from within the property. If a pipe bursts and water damages the building, this falls under escape of water, which is usually covered. But if the damage results from a blocked drain or guttering that you failed to maintain, cover may be refused.
• Existing damage. Any damage that existed before the policy started is not covered. This is why lenders require insurance from the point of exchange: if damage occurs between exchange and completion, the policy needs to be in place.
• Certain high-risk scenarios. Properties that are unoccupied for more than 30 to 60 days (the threshold varies by policy) may have their cover reduced or invalidated. If you are planning to leave the property empty for an extended period, inform your insurer.

What is a rebuild value, and why does it matter?

When you set up buildings insurance, you need to specify the sum insured (the amount the policy would pay out to rebuild the property from scratch if it were completely destroyed).

This is not the same as the market value of your home. Market value includes the land, which cannot be destroyed. Rebuild value covers only the cost of demolishing the remnants and constructing an identical building from the ground up, including professional fees and materials.

On most standard residential properties, the rebuild value is lower than the market value, sometimes significantly lower in areas where land values are high. But on some properties, particularly listed buildings, unusual constructions, or homes in areas where the cost of building materials and labour is high, the rebuild value can exceed the market value.

Getting the rebuild value wrong is a serious mistake. If you under-insure (that is, if your sum insured is lower than the actual rebuild cost), your insurer may apply a concept called averaging or proportional settlement, which means they pay only a proportion of any claim.

Many insurers provide an online rebuild cost calculator to help you arrive at the right figure. You can also use the Association of British Insurers' rebuilding cost calculator, or commission a formal rebuild cost assessment from a surveyor if your property is unusual or complex.

Review the sum insured annually. Building costs change with inflation and material costs, and a figure that was accurate three years ago may no longer be adequate today.

Does your lender choose your insurer?

No. A common misconception among first time buyers is that they must use the insurance product offered by their mortgage lender. This is not true.

Lenders are required to accept any buildings insurance policy that meets their minimum requirements. You are free to shop around and choose whichever insurer offers you the best cover at the best price.

Lenders can ask you to demonstrate that your policy meets their criteria. This typically means providing the policy number and insurer details so they can note it on their records. Some lenders ask for a copy of the schedule.

What they cannot do is insist you use their own product or charge you for using a different insurer. If a lender implies otherwise, they are wrong.

When does cover need to be in place?

Your buildings insurance must be in place from the point you exchange contracts, not from completion.

This is a detail that catches some buyers out. Between exchange and completion, the risk of damage to the property sits with you as the buyer. If the property were flooded or destroyed by fire in the gap between exchange and completion, you would be contractually obliged to complete the purchase regardless, and without buildings insurance, you would have no means of recovering the cost of rebuilding.

Arrange your buildings insurance before exchange. Your solicitor or mortgage adviser will remind you, but do not leave it to the last minute.

The short version

Buildings insurance covers the physical structure of your home against a range of specified risks including fire, flooding, storm damage, subsidence, and escape of water. It is required by your mortgage lender and should be in place from the point of exchange, not completion.

The key things to get right are the rebuild value (make sure it reflects the actual cost of rebuilding your property, not its market value) and the policy exclusions. Understanding what is not covered prevents nasty surprises when a claim arises.

You are not required to use your lender's insurance product. Shopping around is always worthwhile.

Have a chat, no pressure

This article is for informational purposes only and does not constitute financial or insurance advice. Always speak to a qualified adviser before making decisions about protection or insurance products.