Money: How high's your bedroom rating?

Have you ever walked round your house with a calculator, adding up the value of your possessions? You may think this is an activity that should be reserved for nutters and misers, but in fact it is the best way to work out the amount of home contents insurance you need - known as the "sum insured". For those who like checklists , the Association of British Insurers has a good one on its website (www.abi.org.uk).

If this is simply too sad an activity, you can also buy a policy based on the number of bedrooms in your house. The snag with this is that insurers take a very dim view of policy holders who are under-insured. If you have undervalued your contents by more than 20 per cent, you could find that the insurer will make a deduction in the event of a claim payout.

A "bedroom-rated" policy has a limit based, as the name implies, on the number of bedrooms in the property. This type of policy can often work out cheaper than a sum-insured contract (so it's probably a better bet for people whose houses are not crammed with valuables).

For example, Colin Ryan Insurance Brokers, in Ipswich, says that a 45- year-old owner of a three-bedroom semi-detached house in Croydon would pay a premium of pounds 191.88 with CGU for a sum insured calculated at pounds 25,000. However, the same individual would only pay pounds 127.42 under Independent Insurance's bedroom-rated cover, which has a set limit of pounds 35,000.

Some insurers are now setting their bedroom-rated limits higher than the standard pounds 35,000. For example, Norwich Union's is pounds 40, 000, Zurich's is pounds 60,000 and some insurers offer "unlimited cover". Having a limit of more than pounds 40,000 may sound good, but if you only have pounds 25,000 worth of contents you could well end up paying more than you would on a sum-insured cover.

Once you have worked out which type of policy will be cheapest (and you can only compare if you have done all the calculations), decide whether you want more than just the standard cover. A basic policy will cover your contents against what is known as the "standard perils": fire, storm, flood, vandalism and so on. It will also usually protect electrical items, such as a televisions, against accidental damage.

If you want to protect the rest of your contents against accidental damage, you will need to buy a policy extension. You will also need additional cover if you want to insure your personal possessions outside the home. Some of the bigger insurers, such as CGU, Norwich Union and Zurich, offer more expensive policies which include all areas of contents cover as standard. Most policies will require you to list all items worth more than pounds 1,000 and will also limit a claim on any one item to pounds 2,000. This does not apply to furniture.

David Cubbin, of Colin Ryan, advises that once you have worked out what basic cover you need, you should check to see whether the policy offers any business cover: "More and more people are now working from home, so you should look to see whether equipment such as faxes and computers, is covered and whether there is adequate liability cover."

Norwich Union and Halifax offer business equipment cover up to pounds 5,000 and Direct Line and Tesco up to pounds 7,500.

Most insurers will offer a range of discounts on contents policies. For standard security provision (five-lever mortise lock on the front door, window locks, alarm) Direct Line offers up to 17.5 per cent, Tesco 10 per cent and Halifax 5 per cent. However, make sure that if you are given a discount for security, you do actually abide by all the security conditions. If you are burgled and you did not set the alarm, the insurer may reduce the value of the claim settlement or turn it down altogether. In high- risk areas, security provision may be a basic condition of the policy.

Insurers will also offer discounts if you are aged over 50, take a voluntary excess over the standard pounds 50, and build up a no-claims record.

Once you have gone through all of this, you may think you have it covered. Insurers think otherwise. The market is competitive, so they tempt customers with extra sweeteners beyond the standard cover. You may find you are offered legal expenses insurance or cover for cycles, freezer contents, mobile phones, wedding and birthday gifts and garden furniture.

When you are shopping around for quotes, don't forget that there are some good deals around from recent entrants in the household insurance market. These include British Gas, which is offering a third off the first year's premium to tempt customers, and Sainsbury's - guaranteeing a 20 per cent discount on its policy. London Electricity users in the South- east are being offered 25 per cent off premiums (with Churchill Insurance).

Other new insurers include Tesco, the Royal Society for the Protection of Birds and Age Concern.

n Contacts: Tesco, 0845 303 0012; Sainsbury, 0500 301030; British Gas, 08001 384055; Direct Line, 0181-686 8877; Halifax, 0845 600 6003; Norwich Union Direct, 0800 888111; Colin Ryan Insurance Brokers, 01473 343434. For CGU, Norwich Union or Zurich contact a local insurance broker.

n Tim Collison is editor of `Professional Broking' magazine.

WHAT THE JARGON MEANS

n New-for-old cover: stolen or damaged items can be replaced with brand-new ones. Claims for some items, such as clothes, will automatically have some money knocked off for wear and tear, even if the rest of your policy is on a new-for-old basis.

n Indemnity cover, or "wear and tear". This sort of cover is cheaper but you have to make up the difference between the new replacement value of each item and its insured value.