Your best policy is to have a good look around

With all the hassle involved in buying a property, sorting out home insurance directly with your mortgage lender can be tempting simply because it is convenient. But it can end up costing you dear.

A few phone calls to different insurers can save you hundreds of pounds, particularly as premiums are now rising steeply following a surge in claims for flood damage. But this is an area in which it is notoriously difficult to list "best buy" providers, as premiums vary markedly across every postcode in Britain, with some insurers offering great rates in some postcodes and lousy rates in others.

This month's Which? magazine valiantly tries to cut through the muddle, helping to pinpoint the best providers for buildings and home contents insurance.

In the Which? consumer test, a householder was able to cut his existing home contents and buildings cover from £400 to £220 in just one hour of ringing around.

As our table shows, companies such as Axa Direct, Barclays, Egg, First Direct, Direct Line and HSBC consistently scored highly for value in the Which? survey. It also checked out whether consumers get a better deal by going to a broker, but the results were disappointing.

"From our total of 126 quotes, brokers were cheapest only once. Some of the other quotes were fairly competitive, coming in at within £20 to £30 of the cheapest. But one of the quotes we got from a broker was the most expensive," says Which?, whose August edition comprehensively details its recommendations.

Failing to obtain the most competitive insurance cover is costing homebuyers around £4m a year in unnec essary premiums, according to Direct Line. One of the reasons is that more than half of all homebuyers purchase their buildings insurance (without which they would be unable to get a mortgage) direct from their lender rather than shopping around.

And further down the line, when the insurance policy has been running for some years, it can still seem like too much hassle to look into alternative options.

Many borrowers are also deterred from shopping around by the fees they will be charged by their lenders if they decide not to take out the lender's cover. But again, there may still be a cheaper policy worth seeking out because some insurers will reimburse the charges levied by the mortgage lender.

In some instances, however, lenders put conditions on the mortgage which prevent customers buying insurance elsewhere, such as making it a condition of discount mortgages that insurance cover is taken out with them. But most large lenders have abandoned this practice.

In June, the Association of British Insurers (ABI) warned of possible increases in the cost of home insurance fuelled by recent rises in the number of flood and fire claims. It is also important to examine the small print more closely for exclusions as insurers attempt to protect themselves against the most expensive claims.

"The cost of domestic and commercial fires has been increasing," Malcolm Tarling of the ABI said. "Domestic insurance rates have gone up for a number of reasons, including the record rise in flood claims which have had a large effect."

Buildings insurance is designed to cover the structure of your home from catastrophic risks such as fire, flood, lightning and subsidence but when choosing a policy it is crucial that the sum for which the property is insured is enough to rebuild from scratch. This is not the same as the value of the property and it should not be assumed that cover for the value of the property will be enough.

In a recent study by the Co-operative Insurance Society (CIS), it found that many people are actually over-insured and don't realise it - mainly because they are insured for the value of their property and not the cost of re-building, which often works out at less than the value.

The ABI offers help on calculating the cost of rebuilding. Call 020-7600-3333 or go to www.abi.org.uk. And CIS has a leaflet on how to choose the correct sum insured. Call 08457-46-46-46 for a copy.