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Home insurance : how to cut costs

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The Government’s Comprehensive Spending Review later this month is going to hit our pockets in myriad ways — but perhaps the most surprising is a predicted rise in the cost of home insurance.

Insurer the AA is warning any cuts in spending on flood prevention will force up the cost of home cover, as well as leaving some households uninsurable. And it’s not just seaside or Thames-side homes affected: the overall higher risk will hit all policies, according to Simon Douglas, director of AA Insurance.

He has written to Environment Secretary Caroline Spelman, saying: “Insurers are concerned about future flood and storm damage claims which are likely to become more frequent and more severe as the climate warms and they will need to increase reserves to be able to pay out for large numbers of future claims.

“If investment in defences — and that includes ensuring storm drains are kept clear and are improved to remove surface water — is not maintained, insurers will become increasingly fussy about who they insure and premiums will inevitably increase.”

The UK home insurance market is unique in Europe in that it automatically includes flood cover in all policies.

In other nations, flood cover is purchased separately — and there’s a possibility that British insurers could follow suit. But in the meantime, while it’s getting tougher to slash home insurance costs, a little effort can still reward you with savings.

Types of home insurance

First, check what kind of policy you’re shopping for. There are two types of home policies: buildings insurance, which covers against accidental damage that leads to building work, such as fires, subsidence or flooding, and contents insurance. Anyone with a mortgage will have to take out buildings cover under the terms of lenders.

But contents insurance is optional and can be taken out by owners or renters. It protects possessions inside the home from theft or damage, or you can usually pay extra to get the goods covered outside the home too. If you do so, be sure to avoid “double insuring” — there’s no need to buy a mobile phone insurance policy, for example, if your handset is covered under contents insurance.

If you’re buying both, note that it’s usually cheaper to buy one combined policy than two separate ones.

Rising costs

The most recent Budget saw the insurance premium tax go up to 6%. That will kick in during January, but home insurance costs are already up on this time last year. Industry giants have hiked premiums, blaming last year’s severe flooding in the UK. RSA, which owns the More Than insurance brand, recently raised its rates by 4 per cent on home cover, and Aviva also put up premiums.

Figures from the AA show the average cost of buildings insurance is 13 per cent higher than the same time last year, while the cost of contents cover has risen by only 6 per cent over the same period.

Money-saving tips

Shop around for quotes. Online, comparison sites like Moneysupermarket.com and Confused.com allow you to get a quote from several providers at once, but remember to check with other sources too as not all insurers are signed up to these sites. If you do buy online, use a cashback site like Quidco to earn money back.

Offline, you could try haggling. Start with your existing provider — there’s almost always leeway on your renewal quote. They might even match a quote from a rival. If so, you might appreciate the convenience of sticking with your current home insurer.

Check the figures you’re giving to insurers. Mostly they don’t want to know a home’s market value, but the cost of rebuilding it in the event of a disaster. Insurers and comparison sites both offer you help working this out.

Make sure your home is as safe as possible by fitting a burglar alarm and quality locks; even joining a local neighbourhood watch scheme can cut costs.

Playing around with voluntary excesses may also lower your premium — but don’t assume by agreeing to pay a higher excess you’ll automatically cut the cost of cover. Research by Moneysupermarket.com showed that the average household could save 25% on the cost of combined buildings and contents premiums by opting for a £500 excess, rather than no voluntary excess, with a premium of £165 rather than £220. However, confusingly, the researchers found people who opted for a £400 excess actually paid more, on average, than those who went for a £300 or £250 one. Average premiums for homes with a £400 excess were £183 — yet only £174 or £176 for those with a £300 and £250 excess.

Julie Owens, head of home insurance at the website, said: “It is crucial to only
set your home insurance excess at a level you feel comfortable paying in the event of an incident as it could end up backfiring if you increase your excess to save cash in the short term, only to have to fork out more in the long run if making a claim.”

Source : London Evening Standard