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Am I paying too much for home insurance? The science behind premiums

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Do you have a feeling you’re paying too much for your home insurance? Well, thanks to online comparison sites, it’s easier than ever to make sure you’re getting the best deal possible on your home insurance. However, relying on comparison sites alone won’t get you the premium you deserve. Instead, it’s a complicated balancing act of identifying what you require, what extent you need insuring to, as well as learning some of the complicated jargon that surrounds house insurance.

What does your premium cover?

In order to dig into the science behind the cost of your premium, begin by identifying what it is you’re insuring your home against. For example, do you want buildings cover so that your home is insured against damage to the walls, doors, floors and windows? And, do you also require contents cover so that the things inside your home are insured too? If you need both, you should expect your premium to be higher. But, if you only want one of these types of insurance, don’t take out a combined bundle – the premium may be unnecessarily high for your needs.

Optional add-ons

In addition, premiums are calculated by factoring in optional add-ons. It’s important to identify what you really need, as many people unknowingly end up paying for add-ons that don’t really serve them well.

That said, there may well be some ‘extras’ you need, meaning a higher premium is actually necessary. For instance, you might want to be covered for:


  • Accidental damage (this refers to things like DIY disasters or any damage you inflict to the property yourself).

  • Personal possessions (this covers your portable items such as a handbag, a laptop or a phone that are taken in and out of the home).

  • Running your business from home (not all insurance policies cover liabilities arising from your business if you run it from your home).


Identify what you need your policy to cover – that way, you’ll have a much clearer idea about whether or not you’re paying a higher premium than you really need.

Excess

Furthermore, premiums are calculated by taking the excess you’ve agreed to into consideration. The excess is an amount of money you pay towards claims you make on your policy.

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For example, if your claim is worth £600 and you have an excess of £200, the insurance provider will only pay out £400 (because you’ve agreed to personally foot the bill of the first £200). A trick that’s worth knowing, therefore, is to increase your excess to reduce your premium overall. Be warned that this only a good idea if you can actually afford to pay your excess, but if you’re in strong financial position to increase your excess, you’ll find that your premium comes down.

Over-insuring

Finally, your premium will be calculated based on what you’ve told your insurer your house and belongings are worth. However, many people accidentally over-insure their homes by guessing what the the total value of their contents is - something that’s never advisable!

Or, you may be insuring the property to its market value. While insuring the property for its market value sounds sensible on paper, it actually means you’re paying a far higher premium than you actually need. For instance, if disaster strikes and your home is severely damaged or destroyed, the cost of rebuilding the house is going to be less than the current market value of the property – that’s because you only have to pay for the materials and labour, not the land… you already own the ground your house sits on!

As you can see, there are many things that are factored in to calculate the premium you’re charged. But, armed with a bit more knowledge, you can tweak what you need to lower your premium so that you never pay too much again.