I have always been confused about insurance. And I am not the only one. Two thirds of consumers find insurance too confusing, according to a Co-op press release. Most of the time, I just resort to saving, thinking whatever insurance I take, the company won’t cover it anyway, so I should budget for replacing things myself. Things got different when I bought my flat. Now, what if the whole place burns down? What if the repairs cost pretty much what the flat does? Insurance became a must.
And thankfully, now home insurance isn’t so complicated. Basically, you pay your insurer a fixed amount every year. And everyone who gets insured does the same. If something bad happens to your house, the insurer will cover the repairs, which often will amount to more than the sum of your insurance premiums over the years. Which is why you want to be insured should something happen. And if nothing happens, well, you’ve slept soundly knowing you would be covered, and that is priceless.
The rest of the money you pay to your insurer will go to taxes, and cover their running costs, such as paying for their employees and offices.
According to The Co-op, 59% of the money raised on building insurance goes to pay back customers’ claims. 27% covers their running and administrative costs, while 9% goes to tax and the company generates a profit of 5%.
Regarding contents insurance, only 44% of the money goes to claims, but running and admin costs are higher at 45%. The same 9% go to tax, and the generated profit is 2%.
One thing I didn’t really get was when I had been a customer for a while with an insurance company, with no claims, and still, my premium would go up. The Co-op insurance explains that the price you pay for your premium may go up because of inflation, taxes, because you lost your new customer discount, because they anticipate future claims, or because they are making future improvements.
You may also pay less if you have a no claim discount, are more experienced or your personal situation changes.
After seeing these numbers explained simply, I feel better about my home insurance premiums. For example, did you know that the average fire claim costs £14,000? That is a lot of money! I pay about £120 a year for my flat insurance, so in case of a fire, after 10 years of ownership, my out of pocket cost would only be £1,200, not £14,000.
The same way, a burst pipe, which is more likely to happen than fire, costs £2,300 to fix on average.
And flood costs a whopping £17,800.
I understand that you may not want to be covered for contents insurance, arguing that you don’t live in an area of high crime, or your possessions aren’t worth a lot, but your house is probably the most expensive thing you own, so you should look carefully at your insurance contract and make sure you have the proper coverage.