Recent research from Direct Line has shown that 25% of all people have home contents insurance that is £20,000 too little. That is a massive amount to be under insured by but it is easy to see why.

Whilst most can readily estimate the value of visible items such as furniture and electrical goods, it is not so easy to assess the cost of replacing garage and garden items, cookware and wardrobe items. For example, the survey shows that the average Britain owns around £1,700 worth of carpets and £1,000 worth of curtains and blinds.

Getting the right level of home contents insurance can be a challenge but getting it wrong can be costly too. Insurance companies will check when any claim is made that the right level of home contents insurance is in place. This protects them from paying out a disproportionate amount for the risk actually taken. So if the value of the home contents insurance is too low they will pro rata any payout to the proportion of cover to total contents actually in the home.

One area worth checking on any contents insurance policy is whether personal possessions are included. For many this will be an optional extra but if you do regularly take electronic items away from the home then getting them insured on an all risks basis could be beneficial. Standard cover averages around £1,500 but this can be increased up to £4,000 or £5,000 with some insurance companies.

But insurance companies are also more aware of fraudulent claims these days as unscrupulous policyholders make false claims as a way to raise cash to buy the latest technology. Regular claims are logged against a user so premiums will quickly increase and you could be prosecuted if detected. It really is not worth the risk.

One of the ways to keep premiums down whilst getting a financial backstop is to increase the excess or the amount of first loss you are prepared to accept on any claim. This reduces the insurance company risk whilst leaving you fully protected against the major losses that could occur. The Direct Line survey also identified a group of around 20% of all households that have no home contents insurance in place at all. With average possessions valued at £14,000 that is quite some risk these people are taking with their possessions.

Even amongst those that had taken out contents insurance cover around 40% had not adjusted the level of cover to match their change in circumstances. Each year the insurance company will send a renewal notice which includes a suggested change to the level of cover based on inflation. However, it is the policyholder’s responsibility to make sure that the level of cover is adequate for their needs and not rely on industry average increases. And besides, no renewal notice should ever be automatically accepted without first checking for a new quotation from a range of suppliers. Insurance companies rely on customer inertia to gain extra margin each year – do not be a victim of lethargy and save money by shopping around for both the right level of cover and, more importantly, the right price.