General Insurance

Posted by admin On December 21st 2020

The types of loss covered by general insurance can be categorised as below. The first two relate to both personal and commercial situations:

  • Property loss – loss, theft or damage to moveable and non-moveable assets (from jewellery to houses to vehicles etc);
  • Liability loss – loss resulting from legal liability to a third party including personal injury or damage to property.

The remaining three are restricted to solely commercial situations:

  • Personnel loss (sickness, injury or death of employees);
  • Pecuniary loss (as a result of creditors defaulting);
  • Interruption loss (when a business is unable to operate due to one of the other losses occurring, or because its premises have suffered damage and are structurally unsafe, or as the result of a fire).

Some policies may combine protection against two or more types of risk. Comprehensive motor policies, to use an example, cover damage to both the policyholder’s property and to any third parties’ property.



General insurance policies are contracts of indemnity. The principle of indemnity is such that:

In the event of a claim, the insured persons should be reinstated to the same financial position after a loss that they were in immediately before this loss occurred. In particular, this means that an insured person should not be able to benefit from the event that caused the loss.

Life and personal accident policies are not contracts of indemnity. They are in fact benefit policies, since it is much more difficult to accurately measure in financial terms the impact of a serious injury, or a loss of life.

The insurer will usually determine how to restore the claimant to the same position they were in before the loss occurred. There are four main methods of doing this:

  • Cash (normally a cheque);
  • Repair (mostly associated with motor insurance);
  • Replacement – this can be a cost-effective option for the insurer as it has greater purchasing power than an individual consumer and so can negotiate better deals or prices;
  • Reinstatement – prime example, where the insurance company arranges for a damaged building to be restored to its former condition.


Policyholders often underinsure i.e. they insure for a smaller amount than is actually required to repair or replace the lost or damaged property.

This may be because:

  • They are unaware of the correct/appropriate figure;
  • Fluctuation or inflation has increased the amount required;
  • They have deliberately understated the amount in order to keep the premiums down.

In the event of a complete loss, in essence, where a whole flat or house is destroyed by fire, the amount paid out would be limited to the sum insured, even if the actual cost were considerably more.

As many losses are only partial, however, it would be unjust if a policyholder who had paid less premium than was really appropriate were indemnified in full, even if the actual amount claimed were less than the overall sum insured.

In situations such as these, the mathematical principle of average is applied, which means that the claim is reduced in the same proportion that the premium actually paid bears to the premium that should have been paid for the full appropriate sum insured.

To give an example, a policyholder who insured contents for £20,000, when their true insurance value was £30,000, would find that if they claimed £300 for something that was damaged, the insurer would pay only £200.


General insurance policies are usually subject to an excess: what this means is a deduction is made from any claim payment. One situation could be a homeowner might have an excess of £150 on claims for accidental damage on their contents policy. For the insurer, this avoids the administrative costs of dealing with multiple small claims, since it would be pointless for a policyholder claiming for an amount less than the excess. Often an excess is a compulsory element and policyholders might also choose a voluntary excess, or an excess above this compulsory level to effectively lower the premium.


Buildings insurance:

Buildings, including garden sheds, swimming pools, walls, fitted furniture and all fittings and fixtures are usually defined as ‘anything on the premises that would normally be left behind if the property were sold’. Cover is usually provided against:

  • Storms and floods;
  • Fire and lightning strikes;
  • Explosions, subsidence and earthquakes;
  • Damage by falling trees/branches or television aerials;
  • Damage by vehicles and aircraft or by animals.

If the person is looking to buy their home with a mortgage (or as general good practice) buildings insurance is generally a compulsory requirement, as otherwise they may not be able to get the mortgage.

This type of insurance covers the price of rebuilding the home if it is damaged or destroyed, repairing structural damage etc. Sheds, fences and garages are also included alongside drains, cabling and pipes. The insurance also covers architect’s costs, demolition and site clearance.


Policies usually also cover the costs of alternative accommodation during repairs being made.

Standard Buildings insurance usually covers loss or damage caused by:


  • Subsidence
  • Frozen and burst pipes
  • Fire, explosion, storms, floods, earthquakes
  • Theft, attempted theft and vandalism
  • Fallen trees, lampposts, aerials or satellite dishes
  • Vehicle or aircraft collisions.


Buildings insurance will normally always be a condition of a mortgage and must be at least enough to cover the outstanding mortgage.


The mortgage lender should give you a choice of insurer. They can reject your choice of insurer only on valid grounds, but not to make you use their own insurance policy unless the package includes insurance as part of the mortgage agreement.


When purchasing a house, it is advisable to take out buildings insurance when contracts are exchanged.


When selling a house, it is the responsibility of the individual to continue looking after it until the sale is completed, so it is sensible to continue insurance cover until completion of the sale.


If a policyholder’s home is repossessed, it is still their responsibility to insure the building until it is sold, and the insurer must be made aware of the change of circumstance (i.e. that the policyholder  is no longer living there) otherwise the insurance may be invalidated.


Certain types of cover are conditional on the property not being left unoccupied for more than a specified period of, say, 30 days. These include cover against damage caused by:

  • Theft or attempted theft;
  • Burst water pipes or oil leakages;
  • Rioting, civil commotion/unrest and vandalism.

Most policies also cover property owners’ liability.


Contents Insurance:

With contents insurance, cover would typically be provided against the same events and circumstances as described above for buildings insurance. However, additional cover may well include:

  • Extended contents cover for specified personal property outside the home;
  • Damage to freezer contents due to electricity failure (power cuts);
  • Accidental damage to goods while being moved by professional removers.


Contents insurance covers the cost of replacing possessions in the home if they are stolen, destroyed or damaged, and can be purchased as a combined policy alongside the buildings insurance or on its own. The contents you can insure are usually described as the items that you’d take with you if you were moving house. Included in this are furniture, electrical appliances, smaller possessions, and fixtures and fittings such as curtains and carpets.



To clarify, contents can be defined as ‘anything you would normally take with you if the property were sold’.