Home insurance is an insurance policy that will provide financial protection if your home or its belongings are damaged or destroyed. There are two different types of home insurance; buildings insurance which insures the structure of your home and contents insurance, which insures the possessions inside your home.
According to the Association of British Insurers (ABI) the average annual cost of a combined home insurance policy was £407 in the third quarter of 2024. This is compared to £329 a year for buildings insurance and £138 for contents insurance. However, how much you pay for your individual home insurance policy depends on numerous factors which we share in our article, 'How much does home insurance cost?'
In this article, we look at where your home insurance premium goes, why home insurance premiums increase and how to buy cheaper home insurance.
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What makes up the cost of home insurance?
Home insurance can be expensive and you may be wondering why it has increased at renewal even though you have not made a claim. So you can get an idea as to where your premium goes each year, home insurer AXA has broken down its home insurance premium costs which we have highlighted in the following table:
| Where your home insurance premium goes | % of your home insurance premium |
| Claims | 50% to 90% |
| Expenses (including commission) | 20% to 30% |
| Reinsurance/Industry Levies | 5% to 15% |
| Insurance Premium Tax | 12% |
| Insurer Profit | -15% to 5% |
(Source: AXA)
Why does home insurance go up?
When it comes to renewing your home insurance policy, you may have noticed an increase in the renewal premium. This can be down to a number of factors including whether you have made a claim in the last year, if you have changed address or if the number of people in your home has increased.
However, it is not just your individual claims history that can affect the cost of your insurance, insurers also consider the amount paid out to cover home insurance claims as a whole and if there has been a large number of claims in that year it could mean you see an increase in your home insurance premium. Other factors such as fraud and government taxes (Insurance Premium Tax etc) can also mean your home insurance premiums rise as this increase in cost is often passed on to policyholders.
In addition, insurers will also factor in the cost to replace expensive items within the home. As technology improves, the cost of items increases which costs the insurer more to repair or replace if a claim is made. Not only this, but weather conditions could also mean an increase in your home insurance premiums, particularly if the conditions cause damage to homes resulting in more frequent claims.
What affects the cost of home insurance?
How much you pay for your home insurance policy depends on a number of factors including where you live and the size of your property. When insurers quote a home insurance policy they consider different levels of risk, and your risk level helps determine the cost of your home insurance quote.
We list some factors that can affect the cost of your home insurance policy and later in this article we share the steps you can take to try to reduce the cost of your home insurance. For more information and additional factors that affect the cost of your home insurance, read our article 'What affects the cost of home insurance?'
Level of risk
Numerous factors affect the cost of your home insurance policy including the level of risk you pose to the insurer. When completing an online quote, insurers will assess your level of risk and your likelihood of making a claim on the policy. For example, if your home is at risk of flooding you are more likely to make a claim and therefore considered a higher risk compared to someone who does not live near water. As a result, your home insurance premium is likely to be more expensive.
Address
Where you live can affect how much you pay for your home insurance policy as your home could be at more risk of flooding, for example. Additionally, if you live in an area with a high crime rate, insurers may consider your property at risk of theft and your home insurance policy cost is likely to reflect this increased risk.
Property size and type
The size of your property can affect the cost of your home insurance as usually the bigger the property, the more that is likely to need insuring and the more it will cost to repair or rebuild if it is destroyed. To check that you are insuring your home for the right rebuild value, you can use an online calculator to work out your home's rebuild cost. The Association of British Insurers (ABI) has a handy rebuild cost calculator.
The type of property you live in can also affect the cost of your home insurance and if your property is listed, your insurance is likely to be more expensive as it will cost more to repair or rebuild.
Value of items
If you are taking out a contents insurance policy, the value of your possessions will affect how much you pay for your insurance. If you have high-value items your insurance is likely to be more expensive and you may have to take out additional cover to ensure high-value items are insured. There are numerous ways that you can reduce the cost of your home insurance premium, and we share these later in the article.
Claims history
If you have previously made a claim on a home insurance policy, you will need to declare this when asked as not doing so could invalidate your insurance policy. Insurers can also check your previous claims history and so it is advisable to tell the truth when taking out a policy. How much your home insurance policy will increase by does vary depending on what you made a claim for and it is always worth shopping around when getting a new quote as another insurer may be able to quote a cheaper price.
How to reduce the cost of home insurance
Before renewing or purchasing a home insurance policy, follow these steps to reduce the cost of your insurance premium. You can find more money-saving tips in our article, 'How to save money on your home insurance'.
- Increase your excess - An excess is an amount payable in the event of a claim. There is usually a compulsory amount set by the insurer but you may be able to select a voluntary amount that can be paid in addition to the compulsory amount. Increasing your excess will usually lower your premium.
- Compare policies - Comparing multiple home insurance policies before purchasing is likely to save you money as the first policy you find is unlikely to be the cheapest. An easy way to compare is via a comparison site such as Quotezone*.
- Combine cover - Buying a combined buildings and contents insurance policy is likely to be cheaper than two separate policies. However, you may not always need both types of policy, depending on your personal circumstances. Find out what type of policy you need in our article, 'Do I need home insurance?'
- Pay annually - Paying your insurance premium annually can sometimes be cheaper than monthly payments. This is because some insurers add a credit charge to monthly payments.
- Don't auto-renew - Some home insurance policies are set to auto-renew and while this does save you from shopping around for a new policy each year, it can mean you are not always getting the best deal.
How to buy cheaper home insurance
One of the easiest ways to save money on your home insurance policy is by shopping around and comparing the cost of multiple home insurance policies. A quick way to do this is via a comparison site such as Quotezone*. Comparison sites allow you to compare multiple providers at once to find the best deal for your circumstances. It also helps to save time as you won't need to obtain quotes from each provider individually. We have partnered with Quotezone* so that you can search and compare quotes from up to 50 UK home insurance providers. One thing to consider when using comparison sites, however, is that they are not always whole of market which means you could be missing out on a deal elsewhere, especially with providers that don't feature on comparison sites e.g Direct Line.
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