When you buy contents or buildings insurance you will want to get the best policy you can at the cheapest price. There are dozens of price comparison sites that say they can save you on your insurance, but what's important is that you compare identical policies. There's no point saving on your premiums if your policy won't pay out when you need it.

Working out the sum insured

One factor that will influence the premiums you pay is the amount of cover you take out, which will depend on how much your possessions and/or property are worth. In the insurance industry, it's called the "sum insured". The sum insured must be enough to cover the total value of the goods and buildings. The problem is that many people underestimate the cost of replacing or repairing their homes and their contents. If you don't have enough insurance, then, when damage occurs, your insurer may only pay out part of the cost.

Contents insurance

For contents insurance, the cover needs to be able to meet the cost of replacing what was damaged. If your camera is stolen or destroyed you can expect an exact replacement, or one that's as good as your camera if your model is no longer available (depending on the type of cover you have). This could be less than you paid for it. However, an old cooker may have cost £150 when it was bought new, but the equivalent model that meets today's safety standards may cost well over £300.

Buildings insurance

For buildings, insurance must cover the full cost of rebuilding the property, including architect's and surveyor's fees and the cost of clearing away the debris and meeting any new building regulations or by-laws. This is not the same as the market value of the house; it's generally less, because the land on which your home is built is normally not damaged by fire or flood (and the cost of the land accounts for around a third of the value of the property).

If you take the case of two identical houses in the same town: one is next door to a noisy factory in a crowded industrial area while the other is on the outskirts of town with pleasant country views. The houses would sell for very different market prices but the rebuilding cost will be the same.

Accidental Damage

Policies spell out clearly the risks they cover - like fire, theft and flood. For 'accidental damage' cover you have to pay a higher premium, but it means you are covered against such risks as spilling paint on a carpet, or dropping a camera and breaking it.

Indemnity or replace-as-new?

If you buy an indemnity policy, you won't get back the original value of the item as it takes account of 'wear and tear'. Any payment would reflect the age or condition of damaged items. For example, the policy would pay less for a 10-year-old carpet damaged by fire than for a carpet which was only a few months old.

On the other hand, new-for-old policies will replace damaged or stolen items with new ones (or the value of new ones). There are usually some exceptions, such as clothing and household linen. Clearly, with new-for-old policies, the sum insured (on which the premium is based) must be higher so you will pay more for your cover.

Finding the right deal for you

If you're looking for an insurance policy, your first step may be to try a price comparison site. There are dozens of different sites to choose from, but finding the right policy at the right price may not be as easy as it looks:

Remember to:

Compare deals offered by several different price comparison sites, as most of them don't cover the whole market.

• Make sure you read the small print before you click. Insurance small print is invariably boring, but if you don't, you could end up with a policy that won't pay out when you need it.
• You should also contact a broker and see if you can get a better deal from them. You'll find a broker on the British Insurance Brokers' Association website.

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Updated: 17/10/2011