Although home insurance companies are in business to profit and would prefer to pay out as little as possible, most will act relatively reasonably for a couple of reasons.
First, their business is based on the fact that they will have to pay out on claims: as long as they've done their sums right and predicted how many legitimate claims will be made each year, they'll be able to pay them all and still wind up with a healthy profit.
Second, it's not really in their interest to "cheat" you out of a payout, particularly a low one: the money they save won't make up for the years of future premiums they'll miss out on if you move to a different insurer and persuade friends and relatives to avoid the company.
What genuine reasons might an insurer have for refusing to pay up?
There are several circumstances where an insurer won't pay the full claim that may seem unfair but are valid reasons covered by your insurance deal.
One example is when you've answered questions about your locks incorrectly. Some insurers will refuse a payout for this reason, while others will only take it into account if it is relevant to the case. For instance, if you incorrectly said you had a deadlock and actually only have a Yale-type lock which a burglar opened with a method that wouldn't have worked on a deadlock, you won't get the payout.
Another point of potential confusion comes with cover limits. Claims aren't paid just on the value of the loss, but rather taking into account your total cover. This means, for example, that if your total household contents are worth £60,000 but you get a policy with a limit of £30,000, then the insurer may only pay £500 if you have a £1,000 TV set stolen, even though the claim is well below your limit.
What options are available if I'm unhappy with my insurer's decisions?
You can complain to the Financial Ombudsman Service, though you can only do this after complaining formally to the insurer and giving them a chance to deal with the situation. The FOS goes through a three stage process: it begins with an informal look at the case and suggests a resolution (50% of cases end in this way). If needed it then goes to an investigation and a formal report with recommendations. Around 10% of cases aren't solved this way and go to an ombudsman for a final decision.
Around 40% of home insurance complaints are ultimately upheld by the FOS, though the figure is usually slightly higher with buildings insurance than with contents insurance.
Can I sue over my insurer's decision?
In theory you can, but in practice its likely to be a big financial risk. Insurers will often have plenty of past evidence to point to which backs up their decision and it may take expensive legal support to be able to argue against this.
If you lose the case, you may have to pay the insurance firm's legal costs. Even if you win, there's no guarantee the insurer will have to pay your costs. In many cases the legal costs will far outweigh the money in dispute.
PLEASE NOTE: The guidance published in this article is for information only and does not constitute financial advice or a recommendation of any particular home insurance policy or company. If you are in any doubt please consult an independent insurance adviser. A database of advisers in your area is available at www.unbiased.co.uk
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