Home contents insurance - limit your risk with the right cover limit

Whenever you take out a home contents policy, you'll be asked to set a cover limit: the higher the limit, the higher your premium.

In some cases you can pay an even higher premium for cover without a limit, though naturally you'll still only get a payout high enough to cover your actual losses.

The problem is that these can seem like huge amounts and it can be easy to underestimate the value and become underinsured. Most estimates of the cover required for the contents of an average home are in the £40-£50,000 range.

Underinsurance

Its important to remember that some insurers use a policy known as averaging. This means that whenever you make a claim, they'll adjust the payout based on your cover level for the entire house. That means that if they decided your entire possessions are worth £50,000 and you only have £25,000 cover, they'll only payout half of each item's value. This applies even if you are only claming for a single item which is well below your cover limit.

Renting vs Owning

You'll notice as you go through the list that some items won't apply if you are renting. This is usually reflected in the cover limit suggested to tenants rather than homeowners, and thus in lower premiums.

Cover Checklist

Here are a few reminders of some of the things you might forget to include when checking your total contents value. Bear in mind that you need cover for replacing everything: it's unlikely to be needed if you are burgled or even flooded, but in a fire everything really could go.

Kitchen: You'll need cover for all your gadgets, your cookbook collection and that rare whiskey in the cupboard. Don't forget the value of the food in your fridge and freezer which could be ruined by an electric outage: a full load can easily approach or reach three figures.

Bathroom: You won't have to worry too much about a tub of Brylcream, but even a half dozen bottles of cologne or perfume can soon add up.

Bedroom: Don't forget all that stuff you have buried away under the bed or in the cupboard. OK, not everyone has diamond earrings worth a fortune, but that tent, rucksack and airbed could be an extra couple of hundred quid to replace.

Outside the house: Most of us will remember to include the costs of garden furniture and the lawnmower, but look up to the roof: anything from a blazing inferno to a storm and you could be looking at a hefty parts and labour bill for replacing an aerial or satellite dish.

Living room: Fair enough, the British Film Archive isn't going to declare your house as its next venue, but 50 DVDs, a dozen or so old VHS tapes, 100 CDs and that batch of old vinyl, and you could be safely into the thousands of pounds range. And even if your shelf will never be mistaken for the British Library, 50 paperbacks at a fiver a piece and you're talking £250.