As we fill our homes with increasingly expensive gadgets and clothes, crime is rising and so is the cost of home contents insurance. Add to this the problems created by the fickle UK weather and thousands of homeowners find they are more dependant on their insurer than they would like to be. When the time comes to renew your policy, here are four ways to save money:
1. Look beyond your lender
More than half of those taking their first step onto the property ladder and arranging insurance - almost 300,000 people each year - still automatically buy their cover through their mortgage lender, even though organising it that way can cost up to 30% more due to the substantial commissions that lenders take on insurance sales.
This amounts to £5 million of lost savings each year, according to research from Direct Line Home Insurance Over a lifetime of buying home insurance, the total cost of not shopping around for cheaper, equivalent cover can therefore add up to a staggering £209m. For the individual it means needlessly paying £3,500 in the form of commission.
"To make matters worse" explains Direct Line's Malcolm Cooper, "Some mortgage lenders make it extremely difficult for people to break free from their ties, by forcing people to pay a hefty penalty for switching their insurance to an alternative provider."
2. Shop around for the best deal
Richard Mason of insuresupermarket.com, says: "Over 2m people are affected by flooding each year - however, insurance companies are no longer legally obliged to provide cover to people living in flood risk areas, and so an increasingly smaller number of insurance companies will provide cover for this risk.
This means the need to shop around to get the best cover at the best price is all the more important. Also, whilst we always advise users to read the small print, it is especially important to do so where you have a particular concern for your property with regards flooding."
The table below shows how quotes from different insurers compare - both for a house in a flood risk area and for the same house in a nearby area that is not considered to be in risk of flooding.
Provider high risk area (CH1) lower risk area (CH5) Difference
JJMP £216.94 £188.05 £28.89
Direct Choice £222.93 £204.11 £18.82
Prudential £235.02 £235.02 £0.00
Halifax £250.01 £215.98 £34.03
Tesco £365.40 £309.75 £55.65
Lloyds TSB £471.66 £377.26 £94.40
Lombard Direct £508.20 £430.50 £77.70
Screentrade £887.51 £386.44 £501.07
Source: insuresupermarket, 26 Nov 2003. Example is based on a 3 bedroom detached house built in 1997.
3. Get the right amount of cover
The biggest pitfall is that most people have no idea what they have and so underestimate their cover needs. "Many people are seriously underinsuring their home contents," says Kevin Kerridge of Hiscox Direct. "This is mainly for two reasons: firstly homeowners don't fully value everything they own and secondly they don't revalue on a regular basis."
Popular belief suggests that an accurate home contents valuation can be calculated by multiplying the average value of each room by the number of rooms in the house and then adding on the value of special items like antiques or jewellery. But a recent study by Hiscox reveals that this could leave an average home underinsured by as much as 40%.
Guy Knight of Hiscox has expert advice: "It is very easy to overlook the hidden assets within your home. The clue to calculating the true value of your home contents lies in your lifestyle and tastes - in essence, the way you choose to spend your cash, and the value of furniture, clothing, electrical equipment and food you are accumulating.
We recommend that anyone who wants to know the true value of their possessions should calculate, room by room, how much it would cost to replace everything if they were buying it new today."
4. Avoid extra charges
Once you have done your homework, be careful how you pay the premium. Opting to pay home and contents insurance by instalments could mean falling victim to hidden annual percentage rate (APR) charges according to Barclays.
Many insurance companies are charging up to 25% more on home insurance for customers who choose to pay for their cover in monthly instalments rather than making the payment in full. This means that a customer who purchases an annual policy for £400 could be paying an additional £100 per year if they choose to pay on a monthly basis.
Eamon Slevin, managing director, general insurance at Barclays comments: "Paying by monthly instalments is a good way to manage household finances but it is disappointing to see how many consumers are being penalised for choosing this option. It is essential that people examine all aspects of their home insurance policy to check it provides adequate cover at a fair price."
