Policyholders are putting themselves at risk by exclusively prioritising price when they buy insurance, the financial firm has warned.
More and more consumers are using price alone as the basis for deciding on a home insurance policy, Defaqto said today.
According to the financial firm, customers who prioritise price over protection because of the recent economic downturn are often ending up with unsuitable cover.
However, budgets have been put under strain recently by the continuing effects of the credit crunch. The crisis, which worsened earlier this week with the failure of the US congress to pass a £350 billion bank rescue plan, has resulted in many lenders restricting their criteria for extending loans and card borrowing to consumers.
Coupled with these events has been a commodities boom, which has driven up inflation. Annual price rises are now at 4.7 percent - the highest level since 1992. Food and fuel costs have also marked double-digit rises over the past 12 months.
Commenting on how the crunch and the price rises have affected the home insurance industry, Mike Powell, Defaqto's general insurance consultant, said: "Although in these financially difficult times, the cost of insurance cover is an important factor, the cover provided must be at the forefront of the consumers mind."
He added: "Finding out that your insurance policy doesn't cover you when you need to claim, could mean that the decision to save a few pounds was the most expensive mistake you could make."
