Don't make this massive mistake
Fail to do this and you could end up in a huge financial mess.
Every now and then, I come across a financial statistic that sends me reeling. This week, it related to the heady subject of home insurance.
According to the government's recent Family Expenditure and Food Survey, one in four UK households have no home and contents insurance at all.
Figures from the Association of British Insurers (ABI) also provide worrying food for thought: The research showed that in 2009 alone, 22% of Britons cancelled their home contents insurance - and 17% cancelled their buildings cover - to try and make ends meet. Crumbs.
Dicing with disaster
As a student, I was shamefully unaware of most things financial, and I never bothered with home insurance, on the basis that no one would want to steal my scruffy old possessions.
Several of my friends have recently admitted still not having any home insurance, one because she 'didn't really know what it was all about', and another because she was always careful with her possessions, and didn't break anything.
All these arguments seem rather thin when you consider the reasons contents insurance is a good idea. House fires will destroy everything, tatty or not - and burglars won't be as careful with your stuff as you are.
It's also worth remembering that other people's mistakes, outside of your own home, can cause huge amounts of damage. This was forcefully brought home to me a couple of years ago, when the lady in the flat below ours accidentally set her bedroom on fire, and we all had to be evacuated by the fire brigade in the middle of the night.
Thankfully no one was hurt and our flat wasn't destroyed - but it easily could have been. That's why, nowadays, I think home insurance is essential.
The right cover at the right price
It's not just a matter of bagging the cheapest home insurance policy you can find. Instead, you need to find the cover that suits your needs at the best possible price.
Here are four tips to point you in the right direction:
1. The risks of under-insuring
Insurance policies usually give you a choice of insuring your possessions for a specific amount (for example, £50,000) or taking out unlimited cover, which - as the name suggests - covers all your possessions, no matter what the total value.
Unlimited cover is usually more expensive; but it can prove invaluable if you're not sure how much your belongings are worth overall. If you value your belongings at less than their worth, your insurer may well refuse to pay out in full if they are destroyed.
Just bear in mind that even unlimited policies come with certain restrictions (often related to the value of individual items) so as always, make sure you read the small print.
2. Is your excess excessive?
The excess is the amount you'll have to fork out if you make a claim, before your insurer will come up with any cash. Generally speaking, the higher the excess you're willing to pay, the lower your premium will be.
Of course, if you do end up having to make a claim, that huge excess will come back to bite you on the bottom.
3. Outside your home
Personal possessions cover usually comes as an optional add-on to a contents insurance policy. In a nutshell, it protects your belongings when they're outside your home - and is one element of home insurance that I wouldn't be without.
Research has shown that most people carry hundreds of pounds worth of belongings around with them - though many don't realise it. Once you've factored in your phone, iPod, jewellery, wallet and your handbag/manbag itself, you can see how things add up.
Good personal possessions cover can protect all these items and more. It can also make other pricy insurance policies (like rip-off mobile phone cover) unnecessary.
Just remember that (as with your main home insurance policy) you'll need to take into account any excess payments that apply, and value limits set on individual items.
4. How to pay your premiums
Try to pay your yearly premium in one go, rather than in monthly instalments. Although monthly payments may seem more manageable, they actually work out to be far more expensive. This is because most insurers charge very high rates of interest on the repayments.
If you can't find the full amount upfront, consider taking out a 0% purchase credit card and paying with that. You can then pay it off over the course of the year, without racking up any interest. Just make sure you've completely cleared the balance before your 0% period comes to an end.
5. Loyalty doesn't pay
When my last insurer tried to get me to renew my policy for another year, the figure they quoted made me sit down with a thump. They were asking for almost twice as much as the previous year, despite the fact that nothing had changed and no claims had been made.
Needless to say, I told them to sling their hook (in the nicest possible way) and ended up getting the same level of cover, with another insurer, for 40% of the price.
Never renew with your existing insurer without checking out the competition and shopping around. New customers usually get offered the best deals, so vote with your feet and don't get ripped off!
Prevention is better than cure
Of course, we all hope we're never going to need to make a home insurance claim. As John Fitzsimons explained in this article, making three claims within three years could mean your premiums get horribly high.
Fortunately, there are several easy steps you can take to make your home safer and more secure.
To combat the risk of fire, it's crucial you have a working smoke alarm. Expense is no excuse to put off getting one sorted, because you can get one free as part of a home safety visit by your local Fire & Rescue service.
Read The free service that could save your life to find out more.
There are also plenty of things you can do to reduce the likelihood of your home being burgled. And best of all, having good security measures installed should reduce your premiums, too!
Read Secure your home from light-fingered thieves to get you started.
Get help from lovemoney.com
If you need a bit of help choosing insurance, you've come to the right place.
First, adopt this goal: Slash your insurance costs
Next, watch this video: Three great travel insurance tips for skiers
Then why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?
And finally, don't forget to compare home insurance quotes at lovemoney.com.
More: 21 ways to storm-proof your home | Fix up your home for less!
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Comments
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Insuranse, another of life's scams. The older you get, the more the odds swing in your favour. That is, the more you save by not bothering with insurance, the more cash you have to pay for the unexpected. I think I've saved thousands. The biggest con was insuring mortgage repayments. And then come life insurance. The chances of something really happening are very slim.
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I have always believed in insurance but am severely disappointed with my recent experience with Homeserve emergency service. During the snow my 86 year old mother's kitchen roof developed a leak which went directly onto electric plugs. The neighbour turned off the downstairs electric and let me know (I live 2 hours away from Mom). I tried to phone the home emergency (Homeserve) which we had taken through RIAS. Their lines were busy and as I had been on hold in their answering system for almost 2 hours and it was after midnight I gave up to try again the next day. The social worker was called by the carers the next morning and due to cold it was considered safer for my Mother to be put into respite until things could be sorted. When I eventually got through to the Homeserve I was told roofs were not covered. I said that electrics were but they said they wouldn't come out till the roof was fixed (when of course it would no longer be an emergency). The buildings & contents insurance side was OK but the surveyor couldn't come for over a week. We covered the roof with a tarpaulin and had the electrics made safe (by the offending circuit being removed). We decided that we probably could not claim for the roof as it was wear and tear so had it professionally re-roofed ourselves. Meanwhile the contents of the fridge and freezers were destroyed. When I phoned Homeserve to complain about their lack of response the man shouted at me! (A letter of complaint is in the offing.) In the end everything was organised by myself but my Mother has been distressed and confused by the resultant moves which could have been avoided by Homeserve doing what they are collecting premiums for, and she will now probably have to remain in a care home instead of living at home with some assistance from carers. My advice is to avoid the emergency service if it is offered to you as part of your insurance as the big companies use Homeserve and from my experience they are rude and their contract not worth the paper it is written on.
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Could the number of households without cover have anything to do with the behaviour of insurance companies? You know, those that dip into your account the following year with a massive increase in premium? Or those who, when you have a claim, have an arsenal of small print as to why they won't pay out? The insurance industry has learnt from the banks when it comes to playing the odds in their favour. Remember too an article by LoveMoney a week or two back showing just how little insurers do pay back on various categories of insurance. 19% was the worst, as I recall, for PPI. So perhaps it isn't inertia that prevents people from insuring their contents - and other things - but nasty experience of yet another British rip-off industry - the insurance companies. When will executives accept that if they carry on with the practices that they pursue, that their customers are going vote with their feet. I do not have contents insurance and I refuse to take any out knowing what these tricky bookies will do if I give them my money and account details. Joe Public isn't as daft as they all think.
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31 January 2010