Shop around for home insurance

Insurance premium tax goes up to six per cent in January - just as premiums are set to rise following a deluge of flood claims. You’ll need to shop around more than ever for home insurance, so we've got some neat tricks to help keep costs down
When bank statements arrive listing the usual monthly standing orders eating into your balance for insurance costs, energy bills, mobiles and more, it’s very easy to take the laissez faire approach: leave it be and it’s one less thing to worry about.

But lethargy costs money. If you do nothing when your existing home insurance policy comes to an end of the contract, for example, you’ll almost always pay more. Most insurers will send a letter informing you that cover will be automatically renewed - with new, usually higher charges deducted from your bank account - unless you say otherwise.

There are two types of home policies: buildings insurance, which protects against accidental damage that requires building work - including fires, flooding or subsidence - and contents insurance. Anyone with a mortgage is required by lenders to have buildings cover, but contents insurance is optional. It’s usually cheaper to buy one combined policy than two separate ones, but make sure you don’t double-protect goods that are already insured under other policies, like mobile phone cover.

Average insurance costs are rising, in part due to the higher cost of flooding claims. That will accelerate in January 2011, when the insurance premium tax rises to six per cent. So, shop around for a lower-priced policy: it can lead to huge savings. Even if you don’t want to leave your provider, you can still use your research to barter with the company to reduce the cost. Use a price comparison site to find the cheapest cover that fulfils your needs; then go back to your existing insurer to see if they will match the quote.

A three-bedroom property in Ladbroke Grove costing £330,000, with contents worth £40,000 and five years worth of no-claim discount, would pay £128.10 with the cheapest deal from Churchill, according to comparison site Moneysupermarket.com. The most-expensive provider would charge £561.58.

“If your insurer matches the quote or comes pretty close then give them your business for a further 12 months, but if they’re not prepared to play ball, then take your business elsewhere,” says Andrew Hagger of comparison site Moneynet.co.uk. “There are very rarely any benefits for loyalty when it comes to insurance, so make sure you look after number one.”

Another way to lower the cost of insurance is to check that the details of your cover are correct. If you’ve had an alarm fitted, for example, that could lead to savings, as can membership of a neighbourhood watch scheme. Avoid paying in installments: this usually adds to the cost. “If you can afford it, reduce your premium by paying the annual cost up front. Or use an interest-free credit card instead,” says Hagger.

He also warns that even if you spot a cheaper insurance deal, it’s usually best to avoid cancelling a policy before renewal date because “it doesn’t mean you’ll get a full pro rata refund on premiums outstanding.”

Hagger explains: “While you may receive a part refund of the unused insurance premium, it is likely to be less than a pro rata unused premium as the insurance company may look to recover their initial costs of establishing the insurance coverage. So if you were to cancel after three months, you might only get back 50 per cent of the total premium for the year and after 6 months it may be as little as 20 per cent.”

About a third of home insurers will also impose cancellation fees, including Barclays, NatWest, Direct Line, which charges £26.25 and Swiftcover (£25).

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