Beware insurers bearing gifts – the best deals may still be elsewhere

Pens, vouchers, radios – whatever they offer, shop around.

Homeowners are being bombarded with insurance offers on what can seem like a weekly basis. In fact, finding a home-insurance policy without some kind of freebie or discount attached is difficult. While at face value this trend may seem positive, are these offers really that good?

"There is a lot of competition in the home-insurance market and insurers are constantly trying to lure customers in with discount deals and even free gifts if you join them, but don't be taken in," says Jasmine Birtles, founder of financial website Moneymagpie.com.

Notably, both Direct Line and Aviva, the only insurers to have resisted listing on comparison sites, offer some of the most impressive discounts. Last week, Direct Line launched a deal offering new customers one-third off home insurance when they buy buildings and contents policies together. This apes an offer from insurance giant Aviva – up to £55,000 worth of contents cover free with a new building insurance policy.

But we carried out a mystery shop, based on a single male, in a semi worth £134,000, with £30,000 worth of contents, and found that Sheilas' Wheels and esure offer cheaper premiums for a combined building and contents policy. Quotes for Direct Line and Aviva were for £149.10 and £134 respectively, while Sheilas' Wheels offered £116.82 and esure £116.40. So, just because something comes free doesn't mean you shouldn't shop around.

"It's always difficult to tell if consumers really are getting money off the premium or if the premium is priced above the market average in the first place," says Mark Monteiro, an insurance expert at uSwitch.com.

A discount is only as good as the price on which it is based, and homeowners should be comparing quotes, not discounts. With this in mind, what steps can be taken to ensure finding the best possible price?

Generally, combined policies are cheaper than two separate policies for contents and building cover. But there are some instances when splitting the policies up is the better option – if, say, you have never claimed on a building policy but have claimed heavily on contents. Also, those with a high proportion of risky items such as jewellery, but living in a low-risk property, may reduce premiums by splitting.

"But don't forget to weigh up potential savings with the fact that in the event of a claim it's normally much easier for the customer to deal with one insurer than trying to co-ordinate two," says Darren Black, the head of home insurance at price comparison site Confused.com.

Extra charges for those paying by direct debit are another pitfall. Some insurers charge interest on installment payments, so try paying upfront for the whole year.

Special offers aside, one of the easiest ways to reduce premiums is to increase the excess. Increasing a compulsory excess of £50 to, say, £200 should reduce premiums considerably. Opting for indemnity cover instead of "new-for-old"cover will usually cut costs too, as your belongings are insured for the current value, taking into account wear and tear. This is risky, however, in the event of a major burglary or serious damage.

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