There goes the neighbourhood

YOUR MONEY Insurance: in the fourth part of our series we look at policies that cover the structure of your home
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The Independent Online
Never looking a gift horse in the mouth is all very well, but when the nag's a cut-price mortgage it pays at least to check what teeth it has with which to bite unsuspecting borrowers.

As well as factors such as steep remortgaging penalties, be wary if the lender requires you to buy some house insurance as well. The added cost could outweigh any savings that you may make on the loan.

That is because the policies sold by banks and building societies are, on average, more than a third more expensive than policies sold by insurers, according to a survey published by AA Insurance.

"The lenders do overcharge. The commissions they get paid by insurers for selling policies can be as much as 35, 45, even 55 per cent [of the policy premium], and that money's got to come from somewhere," says Tom Walton, of Towry Law, insurance broker.

Even where buying the insurance is not made a requirement of the loan, lenders can and do exert pressure on borrowers to buy house insurance from them. This is particularly the case with buildings insurance, as opposed to contents, where lenders will typically charge a pounds 25 fee if you buy your policy elsewhere.

It is fair enough for lenders to insist you have buildings insurance and to want to vet the terms of any policy you buy elsewhere. After all it is your house that is the security for the loan and insurance directly protects that security through covering your home's structure against risks such as fire, storm damage and flooding. But the suspicion must be that the pounds 25 fee owes more to lenders' desire to maintain their profitability than to any concern for customers.

You are almost certainly better off paying this small fee and buying elsewhere. Buildings insurance is relatively cheap and most experts do not expect costs to start rising again for at least another year. But there is a huge range of premiums.

For example, quotes for pounds 100,000 of cover for a 54-year-old home owner in Leeds (postcode LS4) range from pounds 112 from Norman Insurance Company to pounds 532 from Orion. To take another example, the same cover for a house in south-east London (postcode SE13) could cost anything from pounds 174 from insurer Cornhill to pounds 379 from Guardian.

What is more, these quotes from Towry Law only reflect the range of premiums from the insurers on the broker's panel; they do not include insurers that sell direct to the public, such as Direct Line, which are generally cheap.

As well phoning around for quotes, you may well also be able to cut costs by checking you are insured for the right amount. The policy should cover the cost of rebuilding your home in case, for example, it should be destroyed by fire. Consequently, the cover offered by your policy may well not be the same as your home's market value. But it may also be wrong.

Almost one-third of houses are insured for too much, and one in 10 for too little, estimates Dave Messenger of Messenger Property Insurance, in Weymouth, a financial adviser that specialises in getting people discounts on their buildings insurance. Mr Messenger says that two groups of people are particularly at risk of being over-insured and therefore paying more than they should. The first is those who bought during the property boom years when "house prices were shooting up and valuers were giving insurers rebuilding figures that just reflected the market price. A lot of these have proved very over the top," he says.

Anyone who bought their home in 1980 or earlier may also be over-insured, particularly if the amount covered by their policy is linked to the House Rebuilding Cost Index, compiled by the Royal Institute of Chartered Surveyors, which is used by lenders and insurers to work out levels of cover. This index is based on an averaging of national costs, which means that what are significant regional variations over time can feed through into a sharp divergence between cost and cover.

The Association of British Insurers offers a free leaflet on working out the right level of cover; send an SAE to the ABI, 51 Gresham Street, London EC2V 7HQ. If the level of cover on your policy seems unreasonably high, check the figure with the insurer.

Other points to check with insurers when comparing the level of cover offered include:

q Does the policy cover garden walls and fences as well as your garden shed or greenhouse?

q What is the excess (the first part of any claim, which you agree to pay)?

q Does the policy cover accidental damage?

q If your home is so badly damaged you cannot live in it, what is the limit on the amount the policy will pay out for alternative accommodation?

q How much legal liability cover does the policy offer in case, for example, you get sued because a tile falls off your roof and lands a passer- in hospital?

q Jean Eaglesham works for `Investors Chronicle'.

Subsidence

IF YOU have that sinking feeling, you are not alone. Subsidence is not really a problem in Scotland but roughly half the houses in the UK as a whole are built on clay, which can be susceptible.

Last year there were 45,000 insurance claims for the resulting damage to houses, ranging from fairly minor repair work on cracks in walls to underpinning work, which can cost thousands.

These claims can drag on for years. If your house has a history of subsidence you are probably best off not to switch insurers. Your existing insurer should have all the relevant documentation on, for example, the work that has already been done, which should help with any claim. What is more, switching insurers can lead to problems concerning the time at which a particular subsidence problem first arose and so which company should meet the repair bill.

Claiming for subsidence damage should, however, get easier some time next year, when the "tree root claims agreement" is due to come into force. This is not, as it may sound, a charter for aggrieved pieces of vegetation to start claiming their rights. Instead, it is an industry initiative to try to end the delays caused by disputes over the damage caused by A's tree to B's property and the proportion of the subsidence claim their respective insurers should pick up. Under the agreement the insurer of the affected property will pick up the entire tab for the damage.

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