To compare service between different insurers, it is important to understand the concepts around which the contract revolves. The contents and the building element in a home insurance policy determine the risks and value of the covers, so in the case of homes they are the real protagonists.
What Is the Building Element in a Home Insurance Policy?
To understand this concept clearly, it is useful to use a visual example: a box full of things. In this case, the building element would be the plastic or cardboard support, while the contents would be everything inside it. Returning to a home insurance policy, the building element is the construction of the home and its fixed elements, while everything inside it would be the contents.
Looking at the concept in more detail, it is not only brick walls that are considered part of the building. It also includes other elements essential for habitability:
- Pipes, wiring and other installations needed to provide basic services to the home.
- Mouldings, cornices, parquet flooring or paintwork.
- Accessories such as switches, windows, built-in mirrors and similar fixed elements.
Different Ways to Insure the Building Element
Once the main term used in home insurance contracts is understood, it is also important to distinguish between two types of cover:
First-Loss Cover
When a home is insured on a first-loss basis, instead of covering the total value of the construction, the insurer will cover up to a specific amount established in the contract. This modality, which we do not usually recommend, is sometimes used for homes within condominium or homeowners’ association properties, because the community insurance normally complements this cover.
First-loss cover is also commonly used to insure the building element in a home insurance policy when we are tenants and the owner already has insurance covering the building.
Total Value
If a property has a total value policy, the insurer would cover the full reconstruction value of the building element in the event of a claim.
Home Insurance with the Building or Contents Undervalued
First-loss insurance is usually cheaper than total value insurance. Because the guarantees are lower, it also allows cost savings, which makes it an option for those seeking that benefit. Another similar option is undervaluing both the building and the contents, which is not advisable and usually causes problems in the event of a claim. In this case, instead of using the true valuation, a reduced value is chosen. As a result, premiums will be lower, but in the event of a claim the indemnity will not cover the full damage.
If we insure the building element on a first-loss basis, the proportional underinsurance rule will not apply. However, we know that the full building element is not insured. In the case mentioned above, where we are tenants and the owner has insured the building element of the home at total value, it may be a suitable option.
If you are interested in learning about the building element in community insurance, you can read this other article.
If you want to know how to properly value the building element in a home insurance policy, an expert broker can be very helpful. They will be able to assess the real risk and the benefit of a lower cost. Contact our team without obligation.