According to the ABI (Association of British Insurers), £7.4 million is paid out every day in the UK to settle home contents insurance claims. However, we’re more likely to hear in the media about the claims that are rejected. Included in our tips about home contents insurance, you’ll be able to read about:
- Understanding your home insurance policy
- The common mistakes homeowners make with their insurance
- Tackling the ‘loyalty penalty’
- Shopping around for home contents insurance
- No-Claims discount for home contents policyholders
In this article, we highlight the topic of home contents insurance. We explain the most common mistakes that homeowners make when taking out or renewing a policy. What can you do to make sure that you get the lowest possible premiums, and how can you ensure that your insurer doesn’t reject your claim?
Understanding your home contents insurance policy
One problem with home contents insurance is that there isn’t a standard benchmark to compare different policies objectively, and to see whether they offer good value for money. Each policy is tailored to meet the needs of the homeowner, and the price depends on many different factors. The fact that the average home contents policy is over 20,000 words doesn’t help policyholders to understand what they’re signing up for. It’s therefore crucial that you read all documents supplied by your insurer, and if necessary, ask for clarification. So, what are the most common mistakes people make when taking out a policy to ensure their home and its possessions?
The common mistakes homeowners make with their insurance
Many homeowners have their insurance claim turned down because they weren’t clear about what was included in their policy. Some of the problems commonly excluded from home contents policies are:
- accidental damage (including DIY disasters)
- ongoing damage caused by pollution
- damage caused by failure to maintain the property structurally
- home emergency services (such as plumbing problems)
- losing software, downloaded material or data
- personal possessions taken outside the home (such as mobiles or laptops)
All or some of these exclusions can be added to your policy, but the premiums will be higher.
Over- or undervaluing home contents
Try to be as accurate as possible when calculating the value of your home contents. If you underestimate their worth, then you won’t be reimbursed in full if you make a claim. However, overestimating their value can be as bad in the long-term as your premiums will rise.
Setting your excess at the right level
Your excess is the amount of money you’ll have to contribute towards any insurance claim. Having a higher excess will bring down the price of your premiums, but in case of a claim, your insurer will give you less cash.
New for old vs. indemnity cover
You can choose whether to have ‘new for old’ cover, when the insurance provider reimburses you for the object’s present retail price. Alternatively, indemnity cover reduces the money you receive as it will take wear and tear into account.
Change of circumstances? Notify your insurer
Not notifying your insurer of changes in your circumstances is another common reason why claims are rejected. For example, if you set up a business in your home or take in a lodger, you should always let your insurance provider know otherwise your claim may be invalid.
You should always inform your insurance provider if you make an expensive purchase during the year.
Update your policy
Similarly, you should always inform your insurance provider if you make an expensive purchase during the year. There might be a limit to how much you can claim on one single possession. If you wish to add an object, check this limit and whether it might be cheaper to take out a separate stand-alone policy. This is especially true of high-value possessions such as jewellery, artwork and antiques.
Another common reason why claims are rejected by insurers is because homeowners haven’t followed the conditions of their policy. This is especially true of home security measures. For example, if your premiums are lower because you have had a burglar alarm installed or locks fitted to all windows, your insurance provider won’t reimburse you if your break-in occurred because you carelessly left a window open. Always follow all security measures even if you pop out to the shop for 5 minutes.
Beware of Auto-Renewal of your home insurance
In research carried out by Money Supermarket, they found that a quarter of homeowners allowed their policy to renew automatically without checking with other insurance providers. Of these, half saw an average premium rise of £32 in their home contents premium. Money Supermarket calculate that these people could make savings of up to 40% by switching provider.
Tackling the ‘loyalty penalty’
The ‘loyalty penalty’ (or dual pricing) is when companies (including insurers) offer different prices according to whether a customer is an existing one or not. Unfair as it may seem, new customers get the best discounts as an incentive to switch.
New rules introduced by the FCA in 2017 stipulate that insurers must clearly show last year’s prices alongside the new premiums on renewal notices so that consumers can judge whether their policy is good value. They also have to inform their customers of the benefits of shopping around with prominently-displayed advice.
Shopping around for home contents insurance
Most Britons now recognise the benefits of shopping around for the best insurance cover at the lowest possible price. Using a price comparison site is the most convenient way of finding out what is on offer. However, cheapest doesn’t necessarily mean the best. Some companies will have a higher excess on such sites so that their insurance cover looks deceptively the cheapest. Always make sure you’re comparing like with like.
No-claims discount for home contents policyholders
You’ve probably heard of a no-claims bonus for motor insurance, but did you know you could also get a no-claims discount for home contents insurance? This works exactly the same as for drivers, except there’s no differentiation between fault and no-fault claims.
According to Defaqto data, no-claims discounts are offered by 307 insurers of the 422 on the market. After a year of no claims, you could receive a discount of up to 30% on your policy, which will increase up to 50% after 5 years of no claims. This discount can even be transferred if you switch insurance provider.
It might be cheaper in the long-term to pay for smaller claims out of your own pocket so you don’t lose your no-claims discount. After 4 years of no claims on your policy, some insurers will allow you to pay a fee to keep this discount, and will allow a limited number of claims.
Conclusions about home insurance mistakes
The key to cheaper home contents insurance is by shopping around for a better deal and making sure that you receive the no-claims bonus you’re entitled to.
Paying premiums for years only to have a claim rejected out of hand because you inadvertently invalidated your claim is even worse. Therefore, it’s equally important to understand your policy and its terms and conditions so this doesn’t happen to you.