Nic Cicutti column

WHENEVER I think I am going soft on the financial industry, a letter or phone call from a reader will jolt me back into my usual combative self. Here is one example from a reader we'll call Mr Smith.

Earlier this month he received his buildings insurance premium reminder from Halifax General Insurance Services.

The Halifax deal is similar to many on offer from mortgage lenders: you can send a cheque, or if you don't want to, they'll pay the premium anyway and add the sum to your mortgage total. For many readers, this is seen as a bonus if they can't afford the premiums in any one year.

The amount being asked of Mr Smith, however, was pounds 288.40. It didn't look right. In past years he had been charged pounds 175.80, pounds 184.30 and pounds 189.32, so naturally Mr Smith called the bank, convinced they had made an error. However, he was assured that the new figure was correct, due to a revised method of assessing premiums by postcode

It took one call to his local insurance broker to obtain a quote that was more than pounds 90 less than the Halifax premium. The broker said he had no evidence of premiums in Mr Smith's locality rising dramatically.

Mr Smith has written to Halifax General Insurance Services to complain about the increase. "The silence," he says, "is deafening".

As he points out, what annoys Mr Smith about this is that there must be many people less vigilant than himself who would not check a new premium and would unthinkingly allow the Halifax to pay it and so add it to their mortgage.

They would act like this on the rather quaint - and, so it would appear, misguided - understanding that their mortgage lender has their best interests at heart. In fact it is obvious that the Halifax is more interested in looking after its own interests.

There are several lessons to be learned from Mr Smith's experience, particularly for those of us who will be out house-hunting this Easter.

The first is always get more than one quote from a direct insurer and an insurance broker. Never, unless it is a condition of a loan, automatically take out your lender's cover.

Despite his creditable pounds 90 annual saving, I have no doubt at all that a few more calls by Mr Smith to other brokers and insurers would have cut his annual premiums even further.

Second, always to check the amount you are being asked to pay for your insurance premiums. Leaving aside Halifax's "revised method of assessing premiums by postcodes", many insurers will surreptitiously (and not so surreptitiously) raise prices on the assumption that their policyholders won't notice.

Third, if you do stick with a lender's household or contents policy, never allow it to add the premiums to the amount you owe on the mortgage. This is a recipe for disaster, not only because you are lulled into a false sense of security, as Mr Smith briefly was, but because the interest repayable on successive premiums added to the original loan soon dwarfs the original amount owed.

Think about it: pounds 200 added to a policy in year one becomes at least pounds 400- pounds 500 after 25 years, based on average interest rates over the past decade or so.

For those of you who will be out house-hunting this Easter, I hope you find a bargain. You can help pay for it by keeping an eye on your insurance costs - as Mr Smith's experience shows.