Deciding not to take out a home contents insurance policy, or  undervaluing the things we have in our homes in order to reduce premiums, can seem as if it is an easy way to cut monthly outgoings.

Whilst it may seem a logical short term solution, in the long run it could end up being an expensive mistake.

In these difficult economic times, many UK households are looking for ways to save money, with people opting to insulate homes, drive smaller cars, shop at budget supermarkets and switch providers for services in an effort to cut household bills. There has also been a growing trend recently of UK consumers opting out of what they view as non essential items such as foreign holidays and meals out.

Home contents insurance can appear to be one of those non essential items for many, particularly if you live in a quiet area where the likelihood of being burgled or flooded seems low, but by opting to not renew your insurance premium, you are taking a big gamble where in a worst case scenario you could lose everything.

However, for many thousands of householders in the UK they are running almost as much of a risk by having their contents significantly undervalued on their premium. Recent research has shown that on average one in four people with contents cover have undervalued the replacement of their belongings by a staggering £20K.

Unless you are a particularly meticulous person and have kept receipts for absolutely everything you own, it can be very difficult to accurately estimate the value of your contents. Even if you did have receipts, chances are some of them would be several years old and when considering a like for like replacement of the items, you would have to be an accounting whiz to incorporate inflation, the recent VAT increase and other such factors to come up with a precise figure.

As well as valuing the items that spring to mind, research has shown that some items manage to slip householders minds altogether. Most commonly forgotten expensive items include carpets, cushions and other soft furnishings including curtains and blinds, which in the average house would cost around £2,700 to replace. Other things commonly missed off value estimations include the contents of garages and gardening items, children's toys, cookware such as expensive pots and pans, crockery or cutlery and the contents of wardrobes, including shoes and handbags.

A number of home contents insurance providers have recently launched online calculators and tools to assist householders in accurately valuing the items in their property and to help them consider everything in the home, not just those things that spring to mind as being of value.

Even if you know you have accurately estimated the cost of replacing your belongings, you should try to run through the inventory again at least once a year. The recent VAT increase saw a lot of households dashing in the latter part of 2010 to buy high value goods in order to beat the price rise. However, very few of these households will have thought to contact their home contents insurance provider to update the value of their belongings, which could lead to problems should they need to make a claim.

It is also worth checking if your insurance covers you for personal possessions and to what value you are covered. With many individuals now owning small, expensive electronic items which they regularly take out of the home, for example iPods, smart phones, iPads etc, it is important these items are covered both at home and away.