Cheap Home Insurance Tricks

Do You Need Home Insurance?

Unlike Car Insurance there's no legal requirement to have home insurance, though some mortgage companies will make it a condition of the loan to have buildings cover. This raises the question do you need it at all?

Buildings cover is generally a good idea, as there's always the ‘loss of home' disaster scenario, though contents cover is a bit more wishy-washy. Ask yourself “what would I do if I lost everything?” How much of it would you actually want to replace? Having said that, done correctly contents cover can be very cheap, so the equation is pretty finely balanced. Still it may be worth self-insuring.

Self-insuring

Rather than paying £25 a month to an insurer, put the same amount in a High Interest Savings Account. Then if you have a claim, you'd simply take the cash from this account. If nothing happens you've still the cash to spend.

To make this slightly safer, do it in conjunction with a home insurance policy with a very high excess eg £2,000. This should make the policy very cheap and if a major catastrophe happens, you're covered.

Yet the problem with self-insuring is that while it works well after three or four years of not claiming, if there's a problem in the early days, you may not have enough cash to pay out.

What's the difference between building and contents cover?

They're two different insurance products, although many companies sell them combined. As a rough rule of thumb, imagine you could turn your house upside down. Everything that falls is covered by contents, whatever stays firm by buildings.

It's always important to ensure the ‘sum insured' is correct; this is the amount that you're covered for. Underinsuring can leave your claims unpaid, overinsure and you'll pay too much. Full details on how to assess the amount of cover you need in each case are in the Contents and Buildings sections below.

Is it worth combining buildings and content policies?

Combining policies doesn't always make it cheaper. If you've time, get quotes for standalone policies as well, especially if you're a high risk for one type of cover, eg burglary for contents or flooding for buildings. If the price variance isn't great, then plump for a combined policy as if a claim falls between the two stools, there's no ‘jurisdiction' argument and less admin.

Contents Insurance

Underinsuring your contents can result in claims being seriously underpaid. For example, you’re insured for £20,000, but actually have £40,000 of contents, and then £5,000 worth is stolen. The insurer could then assess your property and only pay out in proportion to your cover, meaning you'll just get £2,500 back.

How to assess the value of your contents

To work out the correct amount, walk from room to room, noting down what everything would cost on a new-for-old basis, including fittings. It soon adds up. The Association of British Insurers (ABI) has a usefulcheck-up table (pages 12-14) you can download, and insurance broker Hiscox has a calculator.

Alternatively ‘bedroom-rated' policies mean your sum assured is automatically allocated depending on your location and the number of bedrooms. It's convenient, but doesn't guarantee the correct cover. There are also a few ‘unlimited sum insured' policies. These can be good value for those with contents worth over £50,000, as the price is roughly based on the average £35,000 sum insured (though those with very high contents values won't be allowed cover).

Very expensive individual goods like antiques and paintings should be professionally valued and listed separately. Watch out - their value often increases over time, so either re-assess or get a policy where the ‘sum insured' rises annually.

Types of cover

Once you've defined the cover level, make sure you're comparing the price like for like.

* New for old. Here the payout should be for the original price of the items, though for clothing there's usually a wear and tear deduction.

* Indemnity cover. Here the broker only pays out the current value of your possessions so, while it's cheaper, it can leave you in the lurch.

* Add-on cover. There are various types. ‘All risks' includes property taken outside your home like wallets or jewellery; legal cover pays for court costs.

Building Insurance

This covers the house's structure and all permanent fixtures and fittings against floods, storm, fire, explosions, malicious damage and other perils.

Who needs it?

If you're renting a property, your landlord should have buildings insurance. If you have a leasehold housing agreement, then the freeholder will usually have the buildings insurance policy which you'll pay for via the ‘ground rent'. It's always worth checking this though.

Thus it's freehold homeowners who generally need buildings cover.

Most people are substantially overpaying

Buildings insurance is usually a mortgage requirement, and the mortgage provider usually makes a very pretty extra penny by flogging you a policy. Yet there's no need to get the insurance with your mortgage company, and usually it's substantially cheaper if you go elsewhere.

What to cover?

A common mistake is to cover the house's market value (the amount it could be sold for), meaning many people are over-insured and paying way too much.

Actually, the amount you cover (again called the ‘sum insured') should be the ‘rebuild value'; simply the cost of rebuilding the property if it were knocked down. Therefore location is less important than the value of materials, labour and architects' fees. However, it's important any building policy covers the cost of an alternative residence for you if your home were being rebuilt.

Commissioning a survey is the most reliable method to establish the rebuild value, but will be expensive unless you're getting one anyway when buying a new home. A less accurate, but quicker, option is ABI'scalculator, or simply asking an insurer to give you a rough value based on standard assumptions.