Why overpay for your buildings and contents insurance when hundreds of insurers are eager for your business?
Prior to becoming a financial writer in 2002, I worked for a string of financial services companies over a fifteen-year period. It was during this time that I noticed the phenomenon which I came to call my 'Rule of Three'.
Quite simply, the Rule of Three is a guideline which demonstrates how expensive everyday financial products really are. For example, the interest bill for an expensive personal loan will be around three times that charged by a Best Buy. Likewise, the interest rate paid by a table-topping savings account will be three times greater than that paid by a mediocre account.
I could go on, but you get the picture. Still, it's worth noting that my Rule of Three is merely a useful yardstick. Indeed, when applied to genuine rip-offs such as travel insurance or payment protection insurance, it can multiply -- even becoming the Rule of Ten! Then again, my Rule of Three works pretty well when applied to home (buildings and contents) insurance, which is what I'm looking at today.
According to The AA's British Insurance Premium Index released in January, these are the average premiums for home building and contents insurance:
Type of cover | Average premium (£) | Shoparoundpremium (£) | Saving (£) |
|---|---|---|---|
Buildings | 209 | 147 | 62 |
Contents | 142 | 84 | 58 |
Total | 351 | 231 | 120 |
As you can see, the average householder could save £120 a year (a nice, round £10 a month) by shopping around for home insurance. However, as always, this average masks an extremely wide range of premiums, as I discovered when shopping around for contents insurance. (As a tenant, I don't need buildings insurance, so I'll leave that particular search to you!)
Naturally, I didn't do the shopping around myself. I let my mouse take the strain by visiting several financial-comparison websites, including The Fool's own insurance centre. For a minimum of £30,000 of contents insurance, without accidental damage or personal possessions cover, I was quoted annual premiums ranging from £60 to £155.
Thus, although my average contents insurance premium was just over the £100 mark, the difference between the highest and lowest premium was £95. Hence, on this occasion, my Rule of Three comes out pretty well, with the highest quote being 2.6 times the lowest.
Thus, as far as you're concerned, the big question should be: is the Rule of Three working for you or against you? For more advice on finding low-cost home insurance, read these ten tips on pruning your premiums.
Finally, it's worth noting that, after accounting for inflation, home insurance premiums are only marginally higher than they were in 1994, when The AA began monitoring this market. Hence, if your insurer puts up your annual premium each year without fail, it's taking advantage of your loyalty. The answer is to ditch and switch when your next renewal notice arrives!
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