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What Insurance Do You Need When Buying A New Home?

Posted 11 June 2018 by Helen Christie

Buildings & contents? Life cover? Here’s your complete guide to the insurance you need when buying a new home...

Your house is likely to be the most expensive thing you will ever buy, and your mortgage is likely to be the biggest financial commitment that you ever make. So, it stands to reason that you’ll want to make sure you protect yourself and your home should the worst happen.

There are several different insurance products that you should consider when you buy a new home. Our essential guide looks at the various types of insurance that are available and the benefits that they offer. Keep reading to find out more.

Buildings insurance

If you are buying your own home then you need to make sure that the bricks and mortar are insured. If you’re taking out a mortgage to buy then buildings insurance will be a condition of your loan – your lender wants to ensure their security is protected – and even if you’re not using a mortgage you will still want to ensure your home is fully covered.

Buildings insurance covers damage to your property, such as the walls, floors and roof. Often, you will find that it also covers fixtures and fittings such as kitchens and bathrooms.

A buildings insurance will typically protect your property against things like fire, subsidence, flood, falling trees and water from leaking pipes. Repairing your home can be expensive and this type of cover is designed to ensure you’re protected against these issues.

If you are buying a leasehold flat then the building may be insured by the person who owns the freehold. Your solicitor will be able to tell you whether you need to take out buildings insurance or not.

Contents insurance

While buildings insurance will cover damage to your home from fire, flood and other factors, contents insurance is designed to protect your belongings.

This type of cover protects all your possessions against loss or damage through theft, fire, flood and other risks. Even if you don’t think you have a lot of high value items, it could cost you tens of thousands of pounds to replace all your belongings in the event of a fire. Consider the cost of replacing all your furniture, clothes and electrical items if your home was destroyed by fire and you’ll see how important contents insurance can be.

Many contents insurance policies have a ‘single item limit’ (typically around £1,500) and a maximum amount of cover for all your valuable items. Many companies offer ‘new for old’ cover where they will replace items that are stolen or that are damaged in a flood or fire.

You can also add additional cover to your policy. For example, you may be able to cover valuable items such as laptops, cameras and jewellery away from the home. Most policies also let you add ‘accidental damage’ to your cover which protects your possessions in the event of an accident.

Some policies include a legal helpline where you can get advice on personal legal matters.

Life insurance

How would you and your family cope if you died within the mortgage term? Would they be able to continue paying the mortgage on your home, and the associated bills?

Life insurance is designed to provide a lump sum in the event of your death within the mortgage term. It allows your partner or family to repay your mortgage, and you can also ensure that there is an additional lump sum available to meet other expenses.

As life insurance is not generally a condition of taking out a new mortgage, research from Finder has found that just 50% of UK households with a mortgage have life insurance.

Read more about the different types of life insurance that are available and the benefits of making sure you are protected in your complete guide.

Income protection insurance

If you’re ill, you’re involved in an accident, or you’re made redundant from your job, you may find it difficult to keep up payments to your mortgage and household bills. According to the Association of British Insurers (ABI), one million people in the UK find themselves unable to work due to a serious illness or injury each year.

Income protection insurance is designed to replace your income in the event of illness, accident or unemployment. It pays a monthly amount for either a fixed period or until you return to work, and replaces part of the income you have lost through not being able to work.

Most policies have an ‘excess’ period which is a waiting period before the payments begin. You can normally choose what excess period you need based on the sick pay you will receive from your employer or any other insurance you have.

If illness would mean you couldn’t pay your mortgage income protection insurance is something you should consider. It’s particularly useful if you’re self-employed or you won’t receive much sick pay from your employer.

Critical illness cover

If you are diagnosed with a serious medical condition, critical illness cover will provide a tax-free lump sum. It covers serious conditions such as cancer, stroke or heart attack and will ensure that you have a lump sum you can fall back on while you undergo treatment.

The lump sum can be used to repay your mortgage, pay for private medical treatment or to help replace your income. You can often include this cover with your life insurance or you can take it on a ‘stand-alone’ basis.

If you choose to combine life insurance and critical illness cover, bear in mind that any pay-out will be on ‘first event’. This means that if you are diagnosed with an illness covered under the policy, it will pay the sum assured and then your policy will end. You won’t get a second pay-out on death within the term.

Some critical illness policies also make smaller pay-outs for less serious conditions or if one of your children is diagnosed with an illness covered under the policy.

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