Question of the week: home insurance

Former_MSE_Lawrence

Q. With the recession house prices have dropped, so surely home insurance should also drop – but mine's gone up this year. Is this right? Pat Cossey, by email

A. By far the most likely reason is you've hit renewal, and therefore your insurer has upped the price, hoping you won't compare and it can profit from your apathy. In fact, apply to your current insurer as a new customer, and it's likely you'd be given a much cheaper price.

Some people actually get PAID to take out home insurance, by getting more cashback than their policy costs, see the Cheap Home Insurance system guide.

As for the specific recession impact, do remember you don't cover the house's market value (the amount it could be sold for), but the‘rebuild value'; simply the cost of rebuilding the property if it were knocked down. Therefore house prices are less important than the value of materials, labour and architects' fees.

Due to the recession the those costs have gone down is some areas, meaning should you need to rebuild, it'll cost less now than before. Therefore the sum amount you insure buildings for could be less, see home insurance tips for details including a calculator.

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dacouch

A very simplified answer.

In reality although builders costs can reduce, the Insurers receive more claims due to a combination of more claims due to people being at home more and fraudulent / exaggerated claims. In addition Insurers rely on making money on investing the premiums they receive and obviously their returns at the current climate are massively reduced.

There are quite a few other reasons the premiums will normally increase in a recession.

I'm not sure about the last sentance, that people should be Insuring their homes for less as this is very miss leading and could cause people who read this post and act on it problems

Insurance premiums tend to increase in recessions, the market is incredibly competitive at the moment which will absorb a lot of the increases the Insurers would normally impose.

FlameCloud

Sorry, but this is wholly wrong advice.

Have you got any actual proof about rebuild costs coming down? I see 4/5 claims a day and the values of them, if anything have begun to increase as material and labour costs increase, which if anything means you need to increase the sum insured.

Furthermore, you fundamentally do not understand how insurers make money. As many on here have pointed out, insurers make little from the premium income- the majority of the money is made by revinvesting it in shares/property. As the values of these fall, then the value of the investments fall, thus meaning that premiums have to rise to maintain profit.

Silly, silly, silly advise.

dacouch

I agree with you Flamecloud, this advice could cause problems, especially as its titled Home Insurance rather than Building Insurance (Excluding the fact that I don't agree rebuilding costs have actually reduced and if they have it would be a miniscule amount). Joe Public reading this could also assume from the title that their contents value would need to be reduced.

Perhaps they could delete the last two paragraphs and it would be reasonable money saving advice

gordikin

MSE has a number of guys in the Insurance forum that give good unbiased advice (you know who you are!). How many of you were asked for input before this thread (and its content) was started? I suspect none, which is disappointing if I am correct.

rudekid48

Just to add my tuppence worth......

If anyone takes the time to trawl back through the Insurance Forum, they will find numerous tales of woe from people that have purchased insurance policies on price alone.

I know that this is a money saving site but surely it is wise to temper this with well informed warnings about the danger of cost cutting too far.

Yes, highlight special offers, cashback opportunities etc even loopholes but to go as far as to advise people to reduce the cover that they have on their homes, which could leave them at risk of being under-insured in the event of a disaster - just to save a few quid?

For me, that is going too far.

The simple fact that the OP of this thread has MSE in the username will convince some people that this advice is credible.

It isn't.

MSE_Martin

I'm afraid some of the answers above have misread what was written.

1. Rebuild values have dropped in many areas of the country - this info was checked and confirmed with the ABI
2. The point is to remind people to cover on rebuild not house price - a sadly common mistake.
3. By FAR the biggest factor of insurance price rises for an INDIVIDUAL (which was what this question was about) is the added extra dunked on at renewal - which hits many people.

I have read all the comments above and taken a look, the only thing that should change is..

"Due to the recession those costs have gone down, meaning should you need to rebuild, it'll cost less now than before. Therefore the sum amount you insure buildings for should be less. "

which I think is too absolute and should have linked to the rebuild calculators so now reads...

"Due to the recession the those costs have gone down is some areas, meaning should you need to rebuild, it'll cost less now than before. Therefore the sum amount you insure buildings for could be less, see home insurance tips for details including a calculator."

dacouch

This is the source the ABI and the Insurers use to calculate and index linking in building costs

http://www.bcis.co.uk/site/scripts/documents_info.aspx?categoryID=1&documentID=26