Question in full:

Every year our insurance premium seems to increase, regardless of whether we have made any claims. What can I do to keep our premiums at the lowest level but still making sure we are adequately insured?

A: Insurers/brokers all have different methods of running insurance products – some putting in inflationary increases every year to keep up with the costs of claims – but you might say, “Why am I paying that increase if I haven’t claimed?”

It is all down to the way they run their business. One good thing is that competition is always quite fierce in insurance, so don’t just sit back and take the increases imposed, shop around. Get at least three quotes in writing and then decide who is best for you, which may not be just down to the price, but also the service level you have received, as service is key especially when claiming.

I would also not recommend just reducing the cover you have, as this could cause problems if you did need to claim, usually by something called the ‘average clause’, which can penalise you for underinsuring.

For example, you insure your contents for £40,000, but the actual full value of your contents is £50,000 at the time of claiming. Your claim is for £10,000, but applying the average clause to this would result in a payment of £8,000, as you are effectively underinsured by 20%.

So if you insure for less than the full value at the time of loss, then any claim payment can be reduced by the proportion that the sum insured bears to the full value of the risk. It is always advisable to make sure you that you insure for the full value of the risk.