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Cut the cost of home insurance
By Rebecca Atkinson
A new piece of research from the Association of British Insurers (ABI) and YouGov found that 22% of people have ditched their home insurance, while 17% have cancelled their buildings insurance. Scotland is the worst region, with 28% of people admitting they no longer have any home insurance in place.
The figures have prompted concern among insurers, as failing to have home insurance in place could leave homeowners and renters at risk if they are burgled. Failure to have buildings insurance, meanwhile, means any flooding or fire damage, for example, could leave them financially exposed.
“Cutting back on insurance protection is a false economy,” says Stephen Haddrill, director general of the ABI. “In these uncertain times, insurance provides a vital financial safety net to steer individuals and families through the recession, as well as helping to provide long-term security.”
Recent figures from Saga show that almost half of burglaries happen when the homeowner is on holiday – making the summer a particularly risky time to ditch home insurance. To make matters worse, the number of break-ins is expected to increase during the economic downturn - during the last recession burglaries jumped 33.8%.
Quick guide to home insurance
There are two types of insurance. The first, buildings insurance, covers your house from any accidental damage that requires building work to be carried out. For example, this might include damage from a fire or vandalism to subsidence or a flood. Homeowners with mortgages are required by banks and building societies to take out buildings insurance.
When buying buildings insurance, the ‘sum insured' or re-build cost is not the market value of your home but rather the amount it would cost to rebuild your home from scratch. It is also the total amount of money an insurer will ever pay out.
The second type, contents insurance, is available to both homeowners and renters and covers your possessions within your home from theft or accidental damage. Some policies will also protect portable items, such as laptops and cameras, away from the home although you'll have to pay an additional premium.
You can choose whether to protect your possessions (from clothes to furniture and white goods) from accidental damage as well as theft. You will also need to consider whether to opt for a new-for-old policy that meets the replacement or repair cost of any items, or an indemnity policy that replaces exactly what was there before.
Homeowners can choose whether to buy separate buildings and contents insurance or opt for a combined policy. The latter option is easier to organise and can often be cheaper.
Cutting the cost of home insurance
1. Shop around; like most insurance products, home insurance is generally cheaper for new customers so sticking with an insurer won't necessarily pay. Use comparison websites (including Moneywise's Compare & Buy tool) to find the cheapest policies but make sure you read the small print to ensure the product is right for you.
It's also worth contacting some insurers directly as several, including Norwich Union, do not use third-party websites.
2. One of the most effective ways you can save on home insurance, after shopping around, is by making sure you don't overestimate your re-build cost – this only applies to buildings insurance.
Many people mistakenly supply the market value of their home to the insurer, rather than the amount it would cost to rebuild your home from scratch. Confused.com estimates that an incorrect re-build cost could result in your paying 20% more for insurance, because the market value tends to be the higher of the two costs.
You can find your re-build cost on your original mortgage documents. Or many property and price comparison websites offer a special calculator powered by BCIS (Building Cost Information Service).
3. Covering your possessions for accidental damage is likely to increase your premium, as is extending the policy to include protection for items away from the home.
“For most people, home insurance is a safety net to cover them against the very worst rather than to protect them from, for example, wine stains on carpets,” says Darren Black, head of home insurance at confused.com. “If you are very unlikely to claim for accidental damage it's probably not worth paying for it.”
4. Making sure you are on the electoral register may also affect your premiums. When you apply for home insurance, the provider may well check your credit record in a similar way that banks do when you apply for credit.
While this will be a ‘soft' check, and won't leave a ‘footprint' on your credit record, if the insurer sees you aren't on the electoral role it may classify you as high risk and bump up your premium.
5. Joining your local neighbourhood watch scheme might reduce your premium slightly - even better, according to Confused.com fitting a burglar alarm could shave 5% off your premium.
Also, check your locks to see if they have the British Standards Kitemark - this means they conform to the insurance industry's standards and could afford you a discount.
6. Finally, don't double up on insurance. For example, there is little point in paying for mobile phone insurance if this is covered as part of your home insurance policy.
Other things to consider
* If you use your property as a business then you will need to find an insurance policy that covers working from home.
* Do you want the cover to include outbuildings such as a shed or garage?
* Do you want to extend your contents insurance to cover any damage or loss of items that you regularly remove from your home, such as laptops and jewellery?
* Many policies have exclusions, so find out what these are before signing on the dotted line.
* Do you want your contents cover to automatically increase the level of cover around Christmas time to include gifts?
* Do you want your insurance to include any offspring living away from home at university?
* Do you intend to sub-let a room or rent out your house? If you don't tell your insurer your policy could be redundant.
* Do you want any extras, such as cover for emergency work?
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