Saving Money On Your Home Insurance

Many people skimp on home insurance but it’s often a false economy. The floods we’ve seen in the last few years show just how vital this form of protection can be. The insurance industry already pays out around £4bn in claims annually and this amount is predicted to increase significantly in the years to come.

Home insurance comes in two main types. Buildings insurance covers the repair or rebuilding of the structure of your property and most things attached to it (except for carpets and curtains). Contents insurance covers your possessions – basically anything you can pick up and move.

The average amount we pay for home insurance is in the region of £300 a year, split about 55:45 between buildings and contents. Both types of insurance usually offer you the option for paying monthly but at a hefty rate of interest. Paying upfront can often knock 10% or more off the amount you’re charged.

Having buildings insurance is normally mandatory if you have a mortgage and about two-thirds of us have a policy. If you live in a flat or other type of shared accommodation it is arranged by whoever owns the freehold of the property (i.e. the block’s management company). Four-fifths of us take out contents insurance but take up is lowest among the poorest households.

Many people take out home insurance with their mortgage lender. These are often the most expensive policies and you’re likely to make significant savings by shopping around. Additionally, if you’ve been with the same insurer for a few years, you’re probably also paying more than you need to.

Sometimes you’ll find companies offer discounts on their home insurance for a short period of time. These can be excellent value for money but make sure you shop around the following year when it comes to renewal time to make sure your quote is still competitive. You can also get discounts if you have multiple insurance policies with the same company (e.g. car, home and travel).

Common exclusions to both types of home insurance include any claim after a property has been unoccupied for 30 days or more and any claim relating to theft or damage made by a tenant. Also, if you work from home, you also need to tell your insurer. If you only do admin or PC work, it’s unlikely that you’ll need to pay anything extra. But meeting customers at home or having any specialist equipment or materials could mean you need to pay extra.

Some people in areas with a significant risk of flooding are finding it’s costing a lot more to insure their homes and some could even be uninsurable if no flood defenses are planned within the next five years. Significant risk in this context is classified as a greater than a 1 in 75 chance of flooding in any given year. You can check for flood risks by postcode and get more information at the Environment Agency’s website.

Beware of under insuring with either your buildings or contents insurance. If your contents are worth £50,000 but only pay for £30,000 of cover then your insurance company may reduce any claim you make by the amount you’re under insured by (40% in this case, and you’ll have to pay the excess too). It’s reckoned that the average value of the contents in UK homes is almost £50,000 and most of us insure far less than this amount. Make sure you don’t get caught short.

Buildings insurance

Let’s look at buildings insurance in a little more detail. Like most insurance policies, in the event of a claim, you will have to pay an excess. This can vary with higher excesses, £1,000 or more, applying in certain circumstances such as subsidence. Note that you’re liable to taking mitigating action to prevent any damage to your property so, for example, if there were obvious signs of subsidence to your home for a few years prior to making a claim you might not receive any compensation.

A good policy should cover alternative accommodation costs while your home is being repaired. It should also cover your garage and any outbuildings you have plus any gates, fences or walls and accidental damage to any underground pipes or cables (there can be additional exclusions for these items compared to the main building so check the small print for details). Some policies now exclude terrorism cover unless an additional premium is paid. Many policies also cover your liability in the case of injury to an individual or damage to their property, up to the value of £1m.

You’ll also need to estimate your home’s rebuild cost. This will be less than its market value and the Association of British Insurers has a handy little calculator to help you with the sums. If your property is more than two storeys high, has a basement or cellar, is listed or has historic features you made need to get a specialist valuation or speak to your insurance company.

Many people with standard properties could find that the rebuild cost on their insurance policy is too high and that they can reduce the premium they’re charged by using a more realistic amount. Don’t skimp though, as we mentioned above, underinsuring can be costly in the event of a claim.

Contents insurance

Although you insure a total amount for your possessions you’ll find a number of different limits apply. Usually there are separate limits for cash, business equipment and items in the garden.

There is often a single item limit of £1,500 so if you own anything worth more than this, jewellery, paintings or antiques for example, you need to list them separately. You’ll also need to take sensible security measures with these items, e.g. locking expensive jewellery in a safe. It’s also worth checking whether your policy will replace new items for old or whether it will knock off an amount for reasonable wear and tear.

It’s a laborious task but it’s worth going round your house making a note of the major items you want to insure and so that you can produce a total value. You should make sure you have proof of purchase for items wherever possible.

Optional extras for contents insurance include accidental damage and cover away from the home (which should mean you don’t to pay for baggage cover when you take out travel insurance). Some policies will cover £5,000 worth of possessions your child has at a university, college or boarding school at no extra charge, meaning they don’t need to get a separate policy.

You can usually save money off your contents insurance if you have certain approved locks or a burglar alarm fitted, or are part of a neighbourhood watch scheme. However, if you do suffer a theft, and there is no sign of forced entry you may find your claim is rejected or reduced.

Finally, don’t forget inflation. The value of your contents and the rebuilding value of your property is likely to go up each year. Although some companies automatically adjust for this when renewal time comes around, it’s worth checking yourself every few years.