Thankfully none of us need to be blessed with Einstein’s awareness of the laws of physics in direct relation to the speed of light, Newton’s apple tree-climbing ability, Pythagoras’ understanding of the mathematical architecture of triangles nor Archimedes’ grasp of the buoyancy of liquid in order to get to the bottom of just how home insurance policy providers establish how much premiums we should all pay annually.
By the same token nor do we necessarily need be hooked up to one massive mainframe computer or have our brains re-mapped/routed/configured to determine complex algorithms. No. Accepting that we are equipped with – and can work our way around – a calculator (or failing that, an abacus) then most of us will find it surprisingly easy to arrive at the approximate premium prices we would be expected to cough up for an average home insurance plan.
Like many things in life, being forewarned is being forearmed. And by doing your homework and subsequently having the facts at your fingertips always pays dividends in the long run in our experience. So knowing precisely what factors influence the potential cost of your next home insurance policy is key to knowing what to expect in terms of financial demands, and thus putting you in a better position to negotiate with insurance brokers from the off.
In addition to this, having a better idea as to how insurance providers set their rates will afford you the opportunity to adopt measures in which to possibly reduce the price of your future agreement. So, to ascertain roughly how much (or conversely, how little) your home insurance premiums will be, let’s take a quick look at the key variables.
The most important aspect of home insurance cover – and that which effectively has the largest financial bearing on your premiums – is working out specifically how much you’ll need; and which in itself serves as the sensible starting point in doing the all-important math in this instance. This means we should divide the all-enveloping aspects of home insurance into the two core areas; namely ‘home contents’ and ‘buildings’.
The former strives to ensure that the homeowner/policyholder is insured for the full value of the possession found within their home, essentially the non-structural bits and bobs. In other words, everything that isn’t welded to either the floor, walls or ceiling; whilst the latter – buildings insurance – is aimed at securing a price which it would cost to rebuild your property in the unfortunate event that it was damaged, due to unforeseen circumstances such as fire, flood or various acts of God.
Number of factors are equated in calculating home insurance premiums, including: security measures taken, cost of rebuild and homeowner possessions and structural integrity of property
With home contents insurance it’s imperative that you scrutinise ALL your personal belongings found within the four walls of your home and provide evidence of their sum value for policy purposes. If you neglect to commit to paper the full fiscal extent of your possessions then your lacklustre initial valuations could easily come back to haunt you should your home succumb to the ravages of fire, flood, burglary etc… when if the insurer deems you don’t have enough cover then your eventual pay-out could fall much shorter than you might have imagined.
It’s always a good idea to walk through every room in your house and make a note of ALL the items of monetary worth then and there, and ascertaining just how much it would cost to replace said items right now.
Buildings insurance on the other hand is more about the approximate costings it would take to rebuild your property from the ground up, should it be destroyed by unpredictable events beyond your control. The big difference being – and something many homeowners forget to remember at the time of looking into home insurance policies – is that the hypothetical cost would be based on the price of raw materials and labour for the actual reconstruction of the building (and the restoring it to its former, pre-damage glories) rather than your home’s current property market valuation. This is where many unwitting folk fall foul by not differentiating between the two. Obviously most people wouldn’t have the foggiest how much this process would cost, which is why experts recommend that you get an independent surveyor to give you a quote, or alternatively use any one of a number of online rebuild-value calculators to afford you a much clearer idea.
After drawing the line under just how much cover you need from a financial perspective, then the next important port of call when familiarising yourself with the rudiments of the way in which home insurance policies are typically worked out, is to spend some quality time mulling over policy excesses. As is the case with a multitude of personal insurance plans, the amount of money which the would-be policyholder is willing to fork out up-front (in the event of filing a claim in the future) is paramount to either increasing or reducing your premiums.[one-half]
Unlike the life works of the aforementioned great minds of our times, this relatively simple equation doesn’t amount to rocket science and is therefore within all of our grasps. Not to put too fine a (decimal) point on it, if you were to elect to pay a £500 excess on your home insurance policy, this equates to the policymaker ultimately being liable for footing the initial £500 bill on any claim lodged by the insured party, yet in turn would bring down the cost of the annual premium; especially when compared to someone who’s opted for a £50 excess.[/one-half] [one-half-last] [box color=”grey”]
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There are however certain exclusions to this, including the often contentious area of subsidence cover listed on a buildings policy. Invariably excesses with regards to subsidence are notoriously much higher to compensate for the greater costs routinely cited in such claims going through.
Risk of subsidence, flooding and security breaches are figured into all home insurance policy quotes from the outset
Next in the ‘How Your Home Insurance Premiums Are Calculated’ hit-list in terms of sliding scale of importance is the way in which you purchase your cover. Many thousands of homeowners here in the UK have discovered that it’s often more cost effective to buy both your home contents and buildings insurance package from the same provider, who historically offer competitively priced double deals to entice the policy-seeker. You’re by no means obliged to do this, and nor should you feel pressured by the provider to pair the two separate entities up in the same ‘one size fits all’ package, as this may well not be right for everyone. Plus, at the end of the day by doing this might not always save the homeowner money. As ever, it’s crucial that you shop around first to compare and contrast both separate and joint covers before making any decision.
Finally, the more extras you opt for on a home insurance plan the more expensive the policy is likely to be. It’s just like spec’ing a new car before you drive off a dealer’s forecourt with the real deal. The greater the list of add-on features, the more you’ll be paying for when it comes to signing that cheque. Or by whichever means you plan to settle up in this day and age. The same applies for home insurance, and like new cars, the potential list of extra features is as long as your arm and can quickly add up.
Therefore it’s vital that you separate the wheat from the chaff and earmark policy accoutrements which you believe are necessary and not simply something you fancy on a whim. Having said that it would be difficult to argue against the logic of snapping up many of the more familiar home insurance policy add-ons if we’re being perfectly honest, and whilst they’re not deal-breakers their inclusions would prove good value for money in the long term; if only for peace of mind. These most commonly run to such extra-curricular features as ‘accidental damage’, ‘legal expenses’ and ‘home emergency cover’, all of which make absolute sense to include.
Elsewhere, and other factors which converge to seemingly dictate how home insurance premiums are arrived can comprise of the postcode in which your property is located in, whether or not there’s above the national average statistics for burglaries in the immediate environs, while should you reside in an area defined as being at greater risk of flooding, then all of this will conspire to nudge home insurance premiums skywards, irrespective of the above mentioned criteria being fulfilled or not.
Of course there are a raft of measures which the homeowner can apply to alleviate higher quotations based on these variables, such as upping security to counter being victim of burglaries (from investing in better door and window locks to investing in comprehensive alarm systems and even installing CCTV to protect your home), and even joining your local Neighbourhood Watch scheme all helps counter any negative effects from the outset. Other aspects which you can do little to control or avoid the increased home insurance premium upshots of are the existing structure of the property. For example flat or thatched roofs are not looked upon kindly by home insurers, not least because they are seen as offering easier access to would-be burglars and expensive to repair if subjected to damage, respectively. And don’t forget the general state of your property could also have far-reaching effects on the premiums quoted, with overall condition of walls and roofs observed in great detail to make sure they won’t be requiring major repairs any time soon.