Are stripped-down policies a saviour from rising home premiums?

By Lana Clements 28.11.2011

Do stripped-down home insurance policies offer better value? We take a closer look.

A couple of years ago the internet revolutionised the way we buy car and home insurance, mostly due to the emergence of comparison websites.

At the same time, the average price of a buildings insurance policy has been rising markedly since 2007, now at £152.18 – its highest ever level, according to the AA.

So where does this leave us today and how do home owners go about getting the best value home insurance?

Comparison websites are great for consumers as they allow a number of policies to be compared quickly and in one place. However, many insurers have warned that these sites lead to people focusing solely on the price rather than quality of a policy.

Some insurers - namely Aviva and Direct Line - decided to snub comparison sites all together. Other insurers seem to have decided, however, that they will play the price game by launching stripped-down no frills polices that will appeal to the increasingly large comparison site audience.

Price versus quality

So do these stripped-down policies offer a better value option or are you going to end up with patchy cover that means you're rejected when it comes to making a claim?

Stripped-down policies supposedly allow customers flexibility in deciding the cover they want at a reflective price. For instance, many home insurers will cover the cost of your building to £1 million as standard, but Swiftcover says: "Why pay for £1 million of cover if you don't need it?"

Swiftcover's basic online home insurance starts at £500,000 which may not sound like much, but remember this is the cost of rebuilding rather than the market value of your property.

A standard three-bedroom semi-detached Victorian house would not usually need insuring for a rebuild cost of any higher than £500,000.

Some insurance providers, often those sourced through comparison sites, will cover you to the exact rebuild cost you specify, so it's important to make sure you have the correct details. To ensure you don't under-insure, you can work out your rebuild costs by inputting a few details to an online calculator from the Association of British Insurers (ABI) and Building Cost Information Service (BCIS).

James Barclay, home underwriting manager at swiftcover.com comments: "Most insurance policies provide cover for things that the average household doesn't require, such as cover for expensive garden equipment or dependents living elsewhere. Read through your policy wording and make sure your cover is appropriate for you – anything extra will be driving up your premium unnecessarily.

"Exercise caution though, and make sure that your policy would provide for you if the worst should happen – after all, that's what's insurance is for."

So there are instances when buying standard insurance may leave you effectively over-insured and a stripped-down policy may give you cover more tailored to your needs.

Pitfalls to avoid

If you are buying a stripped-down policy, the insurer will often try and entice you into buying added-extras during the sales process, which may suddenly seem like a good idea.

In fact, research company Defaqto has found there are a number of key features that are often optional extras, rather than standard within policies, including cover for accidental damage, legal expenses, home emergency and plants in the garden. 

You need to be aware that you may be able to get those features and more included at a better price as standard elsewhere rather than increasing the price of your stripped-down policy.

"The key thing is for people to get the right cover for their needs, whether this be a basic policy or one with all features," says Mike Powell, insight analyst for general insurance at Defaqto.

"If someone doesn't understand what a policy offers, it is important to get clarity from the insurer rather than assume that something will be covered to the degree they want."

The best way to get home insurance that is right for your needs is to decide exactly how much cover you want before comparing policies.

For instance, decide on the outset if you want accidental damage as part of your policy - don't buy it on impulse just before you are about to pay for your policy as many of the stripped-down policies will be relying on you to do this. It's essentially the insurance equivalent of putting sweets by the till to boost your spending.

When you know what cover you want, use a comparison site but also contact some of the providers that are not on these sites – especially Aviva and Direct Line who often have introductory deals for new customers that are worth checking out.