Consumers have been informed that home insurance is 'vital' and that they should not cancel their policies or avoid starting a cover policy, just to save money.

Industry experts have said that consumers who do this are taking financial risks and have warned home insurance policy holders who may be thinking about saving money this way, that they could end up much worse off if they choose not to pay for cover on their houses.

Graeme Trudgill, the corporate affairs executive at the British Insurance Brokers Association (BIBA), has stated that insurance customers might be tempted to cut down on optional insurance policies to save money during the recession. However, he warned that they should not stop paying the premiums for their buildings and contents insurance, otherwise they will be left uncovered and could be at risk of serious financial hardship should anything go wrong.

Cancellations & Non-renewals

A recent survey by the Association of British Insurers (ABI) found that over one in five consumers have already either cancelled or not renewed their home insurance policies, citing cost as the reason for their actions. As the effects of the recession are still hitting people's wallets, 22% of those questioned said that they have discontinued their home insurance policies so they can cut down on their outgoings.

However, insurance companies argue that by cutting out building and contents insurance they could actually be doing more damage to their finances than good. While people recognise that policies such as car insurance are a legal requirement, a lot of homeowners assume that because home insurance is optional it is unnecessary.

Mr Trudgill advised homeowners that: "Of all the insurances that you do choose, the household ones and the motor ones are an absolute must, so we really do recommend that you buy them."

Cover can come cheap

He also pointed out that the average cost of a home insurance policy is £12 each month, which is equivalent to £4 each week. That means a lot of consumers can have their home and possessions covered against theft, fire and floods for less than a pound a day.

While it is understandable that people are trying to save money in any way they can during the credit crunch, the cost of rebuilding a home or replacing everything in it, in the event of a fire to the property, would be even more expensive and potentially disastrous for most homeowners and their finances.

In addition to taking out insurance, it is also important for homeowners to ensure the policy for their houses is sufficient to cover their possessions. Statistics show that in America, up to 27% of all households are not adequately insured. While the monthly premium payments will not increase by much, it could save a lot of money long term.

As tempting as it is to try and save money during times of economic hardship, it actually makes financial sense to stick with a home insurance policy. Consumers who are unhappy with the cost can shop around and try and find a better deal – the insurance market is extremely competitive and new deals are emerging all the time. Remember, home insurance is not just there in case the worst should happen, it is also there to provide peace of mind too.