What is home contents insurance?
Home contents insurance is a protection that covers the movable assets in a home, such as furniture, appliances, electronic equipment, clothing, jewelry, or art properly declared. Unlike multi-risk insurance, which mainly focuses on the structure of the property (walls, ceilings, and piping), this insurance focuses on objects that are part of the family’s daily life and that can represent a significant value in case of loss.
How does home contents insurance work in a claims situation?
A short-circuit causes a fire in the kitchen and damages appliances and cabinets. In this case, home contents insurance covers the replacement of the damaged goods up to the contracted limit.
In another scenario, a theft results in the disappearance of a laptop. If the item is declared in the inventory, the insurer compensates the policyholder for the agreed value in the policy.
Now that you understand what contents insurance is and how it works in practice, it is important to understand in detail how it differs from home multi-risk insurance, often confused with this protection.
What are the differences between home contents insurance and home multi-risk insurance?
Although often confused, home contents insurance and home multi-risk insurance have different functions.
The former essentially protects the movable assets in the home, while the latter covers the physical structure of the property and, in some cases, part of the contents. To avoid duplicate coverage or gaps in protection, it is essential to understand these differences.
Home Contents Insurance
Home contents insurance is a contract specifically aimed at protecting the movable assets of the home. It allows the policyholder to choose the capital to protect and adjust the coverage to their actual needs.
What are the coverages of home contents insurance?
Among the main coverages of this insurance are:
- Theft and qualified theft.
- Fire, explosion, and floods.
- Electrical damage to electronic equipment and appliances.
- Extra coverages for jewelry, bicycles, musical instruments, or art pieces.
In summary, it is a flexible insurance that directly protects the contents of the home. However, like any policy, it also has exclusions that are important to know.
What are the most common exclusions in home contents insurance?
Despite the wide protection, home contents insurance does not cover all scenarios.
Among the most common exclusions are:
- Natural wear and tear of goods.
- Undeclared high-value items in the contract.
- Damages resulting from gross negligence.
Understanding these exclusions is essential to avoid surprises in case of claims. Next, it’s important to understand what is included in home multi-risk insurance, often contracted simultaneously with housing credit.
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Home Multi-Risk Insurance
Home multi-risk insurance is generally mandatory when there is a housing loan. This policy mainly protects the physical structure of the property, but may also include some coverage for contents.
Some of the main coverages are:
- Fire, lightning, and explosion.
- Water damage and natural phenomena (floods, earthquakes, storms).
- Breakage of glass and plumbing.
- Third party liability.
However, this insurance has some typical exclusions, such as:
- Damages resulting from lack of maintenance.
- High-value movable assets not declared.
- Natural wear and tear of the building.
By analyzing these coverages, it is clear that home multi-risk insurance offers comprehensive protection for the property, but may not be sufficient for the contents. If you want to better understand how this insurance applies in practice, check out the article we have prepared for you.
Read also: Home multi-risk insurance: know what it covers and how to choose?
Still have questions about the main differences between these two insurances? Let’s look at a comparative table next that summarizes these two solutions.
Comparative table: home contents insurance vs home multi-risk insurance
Before choosing between home contents or multi-risk insurance, it is essential to analyze side by side what each one covers. The following table summarizes the main differences and helps understand in which situations each modality makes more sense.
| Criterion | Contents Insurance | Multi-risk Insurance |
|---|---|---|
| Main Protection | Movable goods. | Structure of the property (walls, roof, piping). |
| Required? | No. | Yes, in case of housing credit. |
| Flexibility | High, adjustable to the heritage. | Lower, depends on the base policy. |
| Typical Coverages | Theft, fire, electrical damage, extras (jewelry, art). | Fire, natural phenomena, water damage, civil liability. |
| Common Exclusions | Natural wear and tear, undeclared items, negligence. | Lack of maintenance, undeclared high-value assets, wear and tear of the building. |
For many families, combining the two is the most complete solution. Understanding these differences, it is now important to understand the average cost of home contents insurance and what factors it depends on.
How much does home contents insurance cost?
The cost of home contents insurance depends on several factors, such as:
- The total value of the goods to be insured.
- The location of the property.
- The policyholder’s claims history.
- The additional coverages contracted.
The higher the insured capital and the more comprehensive the coverage, the higher the annual premium. In the Portuguese market, it is possible to find basic policies starting at €50 per year, but for higher capitals or inclusion of special coverages, the price can easily exceed €300/year.
Indicative example of capitals and average premiums
To better understand the relationship between the value of the contents and the cost of insurance, here is a simulation with average capitals and premiums practiced in the Portuguese market.
| Insured Capital | Approximate Annual Premium |
|---|---|
| €10,000. | €50 – €90. |
| €25,000. | €100 – €180. |
| €50,000. | €200 – €350. |
Source: ASF – Insurance and Pension Funds Supervisory Authority (reference data on insurance in Portugal).
These values are indicative and may vary depending on the insurer, contracted coverages, and the policyholder’s profile. To define the premium accurately, it is essential to understand the role of the insured capital, which determines not only the annual cost of the policy but also the amount of compensation in case of a claim.
Understanding these ranges helps to have an idea of how much you could pay, but to contract the right insurance, it is crucial to know the concept of insured capital, which defines both the premium and the compensation to be received in case of claims.
What is insured capital and why is it so important?
The insured capital corresponds to the total value of the movable assets protected by home contents insurance. It is on this amount that the insurer calculates the annual premium and also the maximum indemnity limit in case of a claim.
There are two main assessment methods:
- New value: corresponds to the value required to replace the item with an identical, new one at the time of the claim.
- Current/depreciated value: considers the depreciation due to use and lifespan of the item, resulting in a lower indemnification.
Defining the insured capital incorrectly can have negative consequences:
- Underinsurance: when the declared capital is lower than the real value of the assets, the compensation will be proportionally reduced.
- Overinsurance: when the declared capital is higher than the real value, a higher premium is paid without an additional benefit, as the compensation never exceeds the effective value of the assets.
To avoid these errors, it is essential to realistically assess the contents of the home and update the capital whenever significant new items are purchased.
The next step is to understand how to assess the assets correctly, through an inventory and registration of the objects that make up the home’s assets.
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How to assess the assets to insure?
To calculate the insured capital correctly, you should start by making a detailed inventory of all the movable assets in the home. This record helps not only to have a clear view of the value of the contents but also simplifies the process in case of a claim.
Some best practices to organize this inventory include:
- Register furniture, appliances, electronic equipment, and decorative pieces: these are daily-use items that represent a significant part of the total value of the contents.
- Include high-value items: such as jewelry, art pieces, bicycles, or musical instruments. These are items that can significantly increase the insured capital and often require a specific declaration in the policy.
- Keep purchase receipts and photographs of the items: this material serves as proof of ownership and value to the insurer in case of a claim.
In addition to these practices, there are also criteria to follow in the assessment of the assets that help to not leave anything out.
Criteria to consider in the assessment
To avoid missing any important asset, it is useful to divide the inventory into categories.
This way, the assessment becomes simpler and more complete.
- Furniture and decoration: sofas, tables, chairs, rugs, and curtains.
- Appliances: refrigerator, washing machine, oven, microwave.
- Electronic equipment: televisions, computers, tablets, gaming consoles.
- Special items: jewelry, art pieces, musical instruments, high-value bicycles.
By considering each of these categories, you ensure that the insured capital reflects the reality of the home’s contents. Thus, in case of a claim, you can be sure that you are adequately protected.
After assessing the contents, it is important to understand how compensation works in case of a claim, as this mechanism defines how you will be reimbursed for the losses.
How does compensation work in case of a claim?
At the time of a claim, compensation depends on how the insured capital was defined.
There are two main modalities:
- Replacement value: the insurer pays the amount needed to buy a new item equivalent to the one that was damaged or stolen.
- Actual value: compensation takes into account the devaluation of the item over time, resulting in a lower value.
After the incident, the insurer sends an expert to assess the damages.
This assessment process is essential to determine the amount to indemnify and verify if the claim is in line with the contracted coverages.
The payment deadlines vary, but generally, the insurer has up to 30 days after the acceptance of the claim settlement to make the payment.
Understanding these mechanisms is essential to align expectations. However, to properly define the premium and the possible compensation, it is also necessary to understand how to calculate home contents insurance. Let’s see how this calculation works in practice.
Read also: What is an insurance premium and how does it work?
How to calculate the value of home contents insurance?
The calculation of home contents insurance is based on the sum of the replacement value of all movable assets in the house.
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