Four principles for choosing home insurance

Yesterday we were sitting in the garden – yes, we do have a bit of summer here in Manchester, England – having coffee and chatting. Then suddenly, John grinned and said:

‘Darling Prof, you did remember to lock the apartment in Sofia, didn’t you?’

…and I went from ‘relaxed’ to ‘super-stressed’ in about one second. No, it was not the ‘Prof’ business; I can forgive him that because he is so pleased about it. But I had absolutely no memory of locking the door when I left for the airport.

Several deep breaths later, I decided that I most likely have locked; after all I didn’t remember brushing my teeth in the morning either but a surely did that! Further, even assuming that I have forgotten to lock the apartment what is the worst that could happen?

This is what brought home insurance to my mind; I don’t think that our apartment in Sofia is insured and am certain that its content is not. While it is probably wise to insure against ‘acts of God’ (though these are very few and far between in Sofia) the content is certainly not worth it; or is it?

Although we have been very good at shopping around every year for our home insurance, I had no idea how to answer this question systematically; so I decided to set out the principles for choosing home insurance. This is what I came up with.

Assuming that all our decisions are made on the basis of comparison, to work out the principles for choosing home insurance I focused on the following:

• comparing cost;
• comparing terms;
• comparing what you need and what you get; and
• comparing values.

1. Comparing cost

This is the most straight forward one which most people, or at least most financially aware people, do. Apart from everything, this is easy – the days are gone when collecting the quotes to compare what different insurance companies offer took couple of working days and conversations with people.

Today an insurance quote comparison takes several seconds (this depends largely on how powerful is your computer and how fast your internet). As an experiment, I went on one of the well known comparison sites and after filling in the parameters of what I was looking for fifty nine quotes, ranging from £271 ($415) to £1,913.42 ($2,931.44), appeared. Wow, what a spread!

Comparing the cost of home insurance is necessary but not sufficient; one ought to check what do the insurance companies offer for the quote.

2. Comparing terms

Continuing on my geeky quest, I started looking at what do these fifty nine insurance companies offer for the money quoted. My conclusion? These companies offer rather similar conditions with very few variations.

For instance, some throw into the deal legal cover, change of locks cover and ‘new for old’ cover. Differences are not that great or important however, and ironically the most expensive quote includes almost not ‘frills’. All quotes ask for an estimate of the cost of re-building your home (which I have to say, strikes me as a very problematic estimate) and of the value of the content of your home.

In home insurance, just like in any other endeavour, there are ‘outliers’. John Lewis Insurance, for example, comes with unlimited buildings and content as standard and unlimited alternative accommodation.

Now, including the terms that are offered in the selection process can result in a very different choice than looking only, or even mainly, at costs.

3. Comparing what you need with what you can get

This is a very important comparison and one that we often neglect to make because we get so fixated on price and terms. To judge which terms suit you best so that you get ‘value for money’ you have to compare what you need with what is on offer.

For example, thinking of what we need in terms of ‘content insurance’ for the apartment in Sofia is enough to convince me that we don’t need any – the value of the content is likely to be less than a year’s insurance (well, it is cosy but not smart by any stretch of imagination). For our main residence in Manchester, though, we need building and content insurance; legal cover can come handy but we get this through our bank account; and interesting as it is, I am not entirely convinced by the ‘alternative accommodation cover’.

To put it bluntly, if you have pieces of art the value of which exceeds £30,000 ($46,000) and a castle by all means do insure them appropriately; if you don’t go with more modest providers. The important thing is to know what you need and compare it with what is on offer as home insurance.

4. Comparing values

Right, I am not becoming a militant moralist but the way in which our values intervene with our financial decisions is fascinating. Many personal finance bloggers would preach ethical neutrality and moral detachment. I don’t believe in that and think that any decision, financial or other, without ethics is highly problematic.

Our values play important role in making decisions about finance by informing on the moral responsibility of the companies we deal with. Ethical banking and dealing with morally responsible economic agents are strongly on the agenda.

Although this principle for selecting home insurance is less important than the other three it shouldn’t be neglected.

How about insuring this apartment then…

When in Sofia next – in August – we’ll look at different options for building insurance; content insurance we’ll skip. And we’ll have to be careful to find an insurance company that is not corrupt or a money laundering front for Bulgarian shady characters.

How do you choose home insurance?