WITH one in three of us likely to be burgled in our lifetime, and millions of properties at risk of flooding, home insurance should be regarded as a necessity. In fact, many mortgage lenders insist that you have building cover before they will lend you any money.

But with so many companies claiming to offer cheaper home insurance, how do you find the right policy? Times Money shows you how.

What kinds of home insurance are out there?

There are two main types, building and contents.

Building insurance - most mortgage lenders insist that you have building insurance before they offer a home loan. It protects the bricks and mortar of your property and permanent fixtures, such as fitted kitchens and bathrooms. It also covers outbuildings, such as garages, greenhouses and sheds, but boundary walls, fences, gates and driveways are not usually included.

All policies protect a home from fire and damage by someone other than the insured - a third party. Check whether it also covers storm and flood damage, burst pipes, water leakage and subsidence, as not all policies do.

Building insurance is based on the rebuilding cost of a property rather than its market value. Most policies will provide you with alternative accommodation should your home become uninhabitable.

Contents insurance - not compulsory but advisable. Contents insurance protects your possessions. That means anything from electronic goods, furniture and jewellery, to sports equipment and the food in your freezer. Increasingly, garden plants and tools are insurable too.

Like building insurance, contents insurance will cover you for fire and third party damage, as well as theft, but you should check that your policy will also pay out for damage caused by storms, flooding, frozen pipes and other leakages.

Some policies cover legal costs should you or someone else sustain injury in your home or if you have a dispute with your neighbour.

Where can I find the best policy?

Shopping around is the key to finding a policy that provides the cover you need at the lowest price.

Buying building and contents cover from the same company can reduce hassle and price, but make sure you read the small print and examine all exclusions first. Buying the two separately might work out better.

Log on to comparison websites, such as moneysupermarket.com, comparethemarket.com or confused.com, and have a look at their best buys. But make sure you read the small print. Some building insurance excludes rare properties, such as prefabricated buildings or thatched cottages, and the cover provided by contents insurance can vary enormously.

The cheapest type of contents insurance is called indemnity cover. It covers the costs of replacing lost or damaged items but takes into account depreciation in value.

‘New for old’ cover is slightly pricier, but replaces your possessions with brand new versions.

‘All risks’ cover insures goods that might be stolen or damaged when you are out of your home, such as your mobile phone or bicycle.

How do I calculate how much my home and possessions are worth?

Step 1: Subtract the cost of the land

The most important thing to remember when buying building insurance is that rebuilding your house from scratch is cheaper than buying a new home.

The ground your house stands on can add a third to the value of the property. So, to keep premiums low, make sure you subtract the cost of the land from the price of your home.

Step 2: Add up the cost of your possessions

Although it can be a longwinded affair, try to assess the cost of all individual items in your home when applying for contents insurance. Create a checklist of everything you own that might need replacing, including the approximate date when you acquired each item and dig out any receipts you might still have.

Most insurers ask you to define a "sum insured", the maximum amount your insurance policy will pay out. The average British household has £40,000 worth of goods, but most are insured for much less.

Insurers place an upper limit on individual items, usually about £1,000. If any of your possessions exceed this limit you should insure them separately or try to break the item down into components of lower value. For example, you could insure a camera's lens, main body and peripheral equipment separately.

Can I do anything else to reduce costs?

Try not to make unnecessary claims. Some companies offer a no-claims discount, which can cut costs by up to 20 per cent. The fewer claims you make the lower your premium, so wherever possible make household repairs yourself. This will allow you to build up your no-claims bonus.

Do everything you can to keep your home safe. Install security measures, such as time-switch lights, outdoor security lights and join a neighbourhood watch scheme. Installing a burglar alarm can get you a 7.5 per cent discount with some insurers.

Make sure you fit and regularly test smoke alarms. Keep your property well maintained. Any repair work needed due to your negligence is unlikely to be covered.

Specialist insurance

Second-home insurance

If you are away from your home for a long time some policies become void, which can be problematic for those with a second property.

You should seek out home insurance that covers holiday homes. Certain companies offer expatriate home insurance, for those who want to relocate abroad.

Student insurance

Insurers consider students at high risk from theft. Student policies cover expensive items, such as iPods, laptops and games consoles, for theft and accidental damage.

Before splashing out check your parent’s policy - many items will already be covered by their household insurance, so you can save money by avoiding duplication.

Landlords' insurance

All landlords need to have building insurance. Contents insurance may also be available, depending on how the property is furnished. Some optional extras are also available to landlords. Emergency assistance covers the cost of a contractor’s call-out, while rent-guarantee cover compensates you for loss if your tenant disappears without paying the rent.

Tenants' insurance

Taking out specialist cover for tenants usually works out cheaper than a standard home-insurance policy. Building insurance will be provided by the landlord.

Five news stories

Flat-owners pay as insurers and agents split cash

Army of unqualified tradesmen botches repairs

Insurers take a hard line in tough times

Banks turn down millions in claims

Hard-pressed home-owners skimp on insurance

Five features

How to protect your garden goldmine

How to find a reliable tradesman

Five insurance policies to provide cover in the crunch

Defend your home against flooding

10 ways to cut the cost of insurance

Five websites

Financial Services Authority

Association of British Insurers

DirectGov on general insurance

Getting advice on insurance products

British Insurance Brokers' Association