MONEY COMMENT
Bargain Home And Motor Insurance

By Cliff D'Arcy
April 21, 2004

I had to laugh earlier this month when a Foolish colleague asked me whether premiums for home contents insurance had rocketed over the last year. I replied that I believed the cost of this cover had barely moved over the last twelve months.

It turns out that his insurer had decided to hike his annual premium from £120 to £165, even though his circumstances hadn't changed, nor had he made a claim. Perhaps the company thought he wouldn't notice the extra £45! Anyway, after shopping around, my co-worker found a policy that offered 50% more cover for £85 a year, a saving of £35 on last year's premium - and almost half his renewal premium.

However, according to the latest British Insurance Premium Index survey from the AA, Britain's biggest insurance broker, car insurance premiums have nearly doubled over the last ten years. On the other hand, buildings insurance rates have risen by a mere £2 since April 1994.

Car insurance premiums rose steeply over the last five years, but levelled off during 2003. The cost of a typical comprehensive motor policy has risen by less than 2% over the last year, on a par with inflation.

The AA reckons that there are huge savings to be made by shopping around for motor insurance, especially comprehensive cover: the average premium is £776, but the AA's Shoparound premium (the average of the three lowest quotes) is £486 - a saving of £290.

Then again, the AA is anxious about the proposed introduction of EU gender discrimination rules later this year. This will prevent insurers from including gender in their risk factors, which means that a male and female driver will pay the same premium, all other things being equal. The insurance industry is carrying out intense lobbying to exempt risk-based insurance from this legislation.

The average premium for buildings insurance is £208 - but customers can slash up to £75 from this figure simply by shopping around. Note that when it comes to contents insurance, many people are woefully under-insured. It's far better to make a proper valuation of your possessions now, rather than after a flood, fire or burglary! Here's how to do this.

Different insurance companies calculate their premiums in different ways, plus some aim for profitability, whereas others chase market share. This explains why shopping around is so rewarding. So, the next time you get an insurance renewal notice, visit a few insurance websites, call a few direct insurers and try a broker or two. You may be pleasantly surprised at how just how easy it is to lower your premium without cutting your cover!

More: Visit the Fool's Insurance centre | Be Your Own Broker | Beware The Rule Of Three.