How to cut home insurance costs

Could you save money on your home insurance? The answer is, almost definitely. Follow our simple guide.

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The basics

The first thing you need to know about home insurance is that there are two types: buildings and contents. They are separate entities and you can either search for two individual deals, or buy them as a joint policy from one source.

The latter can be a good idea because there are some great deals around. And if you end up in a situation where one incident affects both the building and its contents, such as a fire, there will be no issues as to who is paying for what. So, what's the difference and how do you get the best deals?

Buildings insurance

This covers the actual structure of your home. It will always include the main building and can be extended to cover sheds, the garage, fences, a swimming pool and so on. Buildings insurance is your problem only if you own the property. Otherwise it's your landlord's issue. If you own a flat, it's likely the freeholder will include buildings insurance in the ground rent.

If you are a homeowner, having buildings insurance will probably have been a condition of your mortgage. For many people, their mortgage provider will also have sold them a pricey buildings insurance policy - but you may well get a better deal elsewhere. (First check you are not liable for charges if you do move insurers.)

A good buildings insurance policy should cover you for fire, flood, subsidence, storms, lightning, theft or vandalism, escape of water and oil, and damage caused by falling trees, branches or other objects.

If you can no longer live in your house because of damage, your insurance will also cover alternative accommodation costs. The 'sum insured' - or the amount the policy will cover - should not be the amount your house is worth if you were selling it. It should be the cost of rebuilding the property if it was knocked down.

For a fee, a chartered surveyor can tell you how much the rebuild value is. You can also ask an insurer to give you a rough value, or the Building Cost Information Service has a calculator that will work it out for free. Premiums may be paid monthly or annually. It is usually cheaper to pay it all in one go.

Contents insurance

This covers everything you would take with you if you moved home. That typically includes furniture, household goods, food and drink, TVs, computers, clothing and valuables, usually up to a stated limit. No mortgage lender can insist you take out contents cover and you need to organise it yourself.

The policy pays out if any of your home contents are lost or damaged. Claims are usually made after a burglary or a fire, but a policy should also pay if your possessions are damaged or lost as a result of an explosion, leaks or if your home is vandalised.

Many insurers cover the cost of replacing locks if your keys are stolen. Most policies pay for accidental damage, but the extent of cover varies, so check this.

Most policies may be extended to cover accidental damage or loss of valuable items you frequently take out of your home, such as jewellery, cameras and sports equipment. It is known as an 'all risks extension'.

Like buildings cover, the sum insured is the total amount of money for which your contents are covered. It's the most your insurer will pay even if your possessions are destroyed and it determines the premiums you pay, so it's vital you calculate the amount correctly.

What do you imagine the average contents of a family home are worth? To get an idea of the sum to be insured go through every room - including the loft, garage, cellar and shed - and write down what it would cost to replace every item at today's prices.

How to cut premiums

There are ways to make sure your premium is as low as possible and insurers offer reduced rates if certain safety and security elements are in place, such as:

1. Measures to reduce theft risk:

Fit a burglar alarm, buy a safe, install time-switch lights, join a Neighbourhood Watch scheme, install security lighting, plant prickly hedges under ground-floor windows, have bars fitted if you live in an urban ground-floor flat etc. NACOSS standard alarms can get you up to a 7.5% discount, approved locks a further 5 per cent.

2. Measures to reduce fire risk:

Fit and maintain smoke alarms.

3. Increase the standard policy excess:

If you are willing to cover more of the cost of any claim then you will reduce your premium.

4. No claims:

The fewer the claims, the lower your premium. Also see which home insurance companies offer a no-claims discount.

Finding the best policy

Shop around, comparing as many prices and policies as possible. Insurance firms apply different underwriting criteria when assessing home cover quotes, hence the variation in premiums.

For example, if a postcode has a history of claims with one insurer, you'll receive a more expensive quote, but another insurer may have a good experience of that postcode, resulting in a cheaper quote.

Using an online insurance comparison will help you find the best deals. Compare the best available rates using This is Money's comparison tool.

Direct Line and Aviva refuse to be included by any comparison site and can be competitive, so it's worth checking these separately.

Make sure you are comparing like with like. New-for-old cover is where the payout is for the current cost of replacing an item (taking into account wear and tear on clothes and carpets).

Indemnity cover pays only the current value of your possessions. It is cheaper, but you might not be able to replace everything. There are some great cashback deals around where an insurer will pay you to change to their policy from your current one. Also, there are some excellent offers if you buy buildings and contents insurance online.

* Based on an article by Anne Shooter, Daily Mail. Created May 2009, Simon Lambert, This is Money

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