What is home contents insurance?
Home contents insurance is a protection that covers the movable assets in the home, such as furniture, appliances, electronic equipment, clothing, jewelry, or art properly declared. Unlike comprehensive property insurance, which focuses mainly on the structure of the building (walls, ceilings, and pipes), this insurance focuses on the objects that are part of the family’s daily life and can represent a significant value in the event of loss.
How does home contents insurance work in the event of a claim?
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 insured 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 comprehensive home insurance, often confused with this protection.
What are the differences between contents insurance and comprehensive home insurance?
Although often confused, home contents insurance and comprehensive home 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 duplicating coverage or gaps in protection, it is essential to understand these differences.
Home Contents Insurance
Home contents insurance is a contract specifically focused on the protection of the movable assets in the home. It allows the insured to choose the capital to protect and adjust the coverages to their real 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 and electrical equipment.
- Extra coverages for jewelry, bicycles, musical instruments, or art pieces.
In short, it is a flexible insurance that directly protects the contents of the home. However, like any policy, it also has exclusions that need to be understood.
What are the most common exclusions in home contents insurance?
Despite the breadth of 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 a claim. Subsequently, it is important to understand what is included in comprehensive home insurance, often taken out simultaneously with a home loan.
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Comprehensive Home Insurance
Comprehensive home insurance is generally mandatory when there is a home loan. This policy protects mainly the physical structure of the property but can also include some coverages on the contents.
Some of the main coverages are:
- Fire, lightning, and explosion.
- Damages by water and natural phenomena (floods, earthquakes, storms).
- Breakage of glass and pipelines.
- 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 of the construction.
When analyzing these coverages, one can see that comprehensive home insurance offers comprehensive protection for the property, but it may not be enough for the contents. If you want to know more about how this insurance applies in practice, check out the article we have prepared for you.
Read also: Comprehensive home insurance: what it covers and how to choose?
Still have doubts about the main differences between these two insurances? Let’s look at the following comparative table with a summary of these two solutions.
Comparative Table: Home Contents Insurance vs Comprehensive Home Insurance
Before choosing between home contents insurance or comprehensive insurance, it is essential to analyze side by side what each one covers. The following table summarizes the main differences and helps you understand in which situations each option makes more sense.
| Criterion | Contents Insurance | Comprehensive Insurance |
|---|---|---|
| Main Protection | Movable goods. | Property structure (walls, roof, pipes). |
| Required? | No. | Yes, in case of a home loan. |
| Flexibility | High, adjustable to the assets. | Lower, depends on the base policy. |
| Typical Coverages | Theft, fire, electrical damages, extras (jewelry, art). | Fire, natural phenomena, water damages, civil liability. |
| Common Exclusions | Natural wear, undeclared goods, negligence. | Lack of maintenance, undeclared high-value goods, construction wear. |
For many families, combining the two is the most complete solution. Understanding these differences, it is now essential to understand the average price of contents insurance and what factors it depends on.
How much does home contents insurance cost?
The cost of home contents insurance depends on various factors, such as:
- The total value of the assets to be insured.
- The location of the residence.
- The insured’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 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, see 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 insured’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 value of the compensation in case of a claim.
Understanding these ranges helps to have an idea of how much you might pay, but to contract the right insurance, it is essential to know the concept of insured capital, which defines both the premium and the compensation to receive in case of a claim.
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 compensation limit in case of a claim.
There are two main evaluation methods:
- New value: corresponds to the value necessary to replace the item with a new, identical one at the time of the claim.
- Current/depreciated value: considers the depreciation due to use and the item’s age, resulting in a lower compensation.
Incorrectly defining the insured capital 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, you pay a higher premium with no additional benefit, as the compensation never exceeds the actual 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 assets are purchased.
The next step is to understand how to perform this evaluation correctly, through an inventory and registration of the items that make up the home’s assets.
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How to assess the assets to be insured?
To correctly calculate the insured capital, 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 good practices to organize this inventory include:
- Register furniture, appliances, electronic equipment, and decorative pieces: these are daily use goods 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 assets that can significantly increase the insured capital and often require a specific declaration in the policy.
- Keep purchase invoices and photos of the goods: 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 evaluation of assets that help to leave nothing out.
Criteria to consider in the evaluation
To avoid leaving out any important assets, it is useful to divide the inventory into categories.
This way, the evaluation 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, game consoles.
- Special objects: 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 will be sure that you are adequately protected.
After evaluating the contents, it is important to understand how the compensation works in case of a claim, as it is this mechanism that 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: the compensation considers the depreciation of the item over time, resulting in a lower value.
After the occurrence, the insurer sends an adjuster to assess the damages.
This appraisal process is essential to determine the amount to compensate and verify if the claim complies with the contracted coverages.
The payment deadlines vary, but as a rule, the insurer has up to 30 days after accepting the compensation proposal to make the payment.
Understanding these mechanisms is essential to align expectations. However, to correctly define the premium and the possible compensation, it is also necessary to understand how to calculate home contents insurance. Let’s see below 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.
The formula is simple:
Insured capital = sum of the replacement value of all movable assets
Once this principle is defined, the next step is to apply the formula