Are you safe & secure?
Find out how to keep burglars at bay during the dark winter months
Your house is probably your biggest ever purchasing decision, so it’s no surprise there’s insurance involved
A house represents most people’s biggest asset, their largest monthly outlay and their most important purchase decision all at the same time, so doing everything you can to protect it makes perfect sense.
The process of buying a home isn’t cheap, and there are a lot of different costs. Some are avoidable, optional or can be delayed, but others, including insurance, are vital and inescapable. This is what you need to know about all the types of insurance involved in buying a house.
When buying a home, there are many kinds of insurance you are most likely to encounter:
Of these, buildings insurance is the most common, which almost every single new owner will need to have in place before their house purchase is complete. It protects the structure of your new purchase from harm.
Contents insurance and life insurance come later in the process, once you’re ready to move in. Respectively, these protect your belongings and your loved ones in case you die and they are unable to meet their mortgage repayments.
Indemnity insurance isn’t relevant to the majority of home purchases, though it is still fairly common. Usually paid by the seller, it is entirely possible to have bought and sold numerous properties before you come across it, if at all. It is used to protect the house from future problems which are serious enough that the local council intervenes.
If you’re purchasing a property in England, you need buildings insurance in place when contracts are exchanged. In Scotland, the contract steps differ but buildings insurance normally starts on the day you are due to take possession at the latest. In either circumstance, without it your solicitor will not go ahead with the transaction.
This means it needs to be bought in advance, with the details supplied to your conveyancing solicitor in time to prevent unnecessary delays to the purchase.
If you are set to become a leaseholder – generally the case when buying flats in England and Wales – the freeholder usually buys the buildings insurance and passes on your share of the costs as part of your service charge. However, the freeholder is not obliged to provide insurance cover; your solicitor may point you in the correct direction but if in doubt, your lease will specify whether it’s your responsibility.
If you own a flat in a block, it can be significantly cheaper to club together with the other owners to arrange a single buildings insurance policy that covers everyone. This may be harder to arrange, and you don’t want to find yourself underinsured or have your cover delayed because the people in the flat above are behind with their share of the renewal rate.
Buildings insurance is a mortgage lender stipulation. They insist on it in case something happens to the property which would be costly to remedy. For instance, if a pipe bursts during the time between the former owners leave and you get the keys and floods the flat below, you are still bound to continue with the transaction.
Without a buildings insurance overlap, your property sits in a vulnerable position, a kind of coverage limbo.
There is no legal requirement for your home to be insured either by buildings or contents insurance. However, it is frequently insisted on by mortgage lenders – and being adequately covered should the worst happen may give you valuable peace of mind.
If you’re buying with case, there is no lender to ensure that buildings insurance is in place. Since it is not illegal for your property to be uninsured, you are not obliged to buy buildings insurance. However, it’s worth considering how you would pay for repairs and alternative accommodation if something serious happened to the property.
Buildings insurance covers repairs structural damage to the fabric of your home caused by:
Outbuildings, such as garages and sheds, are also covered by buildings insurance.
The policy would cover the full cost of rebuilding or repairing your home including associated costs such as any demolition and site clearance fees.
Contents insurance covers the things inside your home that aren’t part of the structure. This includes anything that can be moved, including curtains, carpets and white goods, as well as your possessions, including larger objects like televisions, computing equipment, cameras and bikes, but it also accounts for other household and personal items.
Some policies can even account for things like spoilt food in the event of an extended power loss affecting your freezer – not necessarily the most glamorous thing to be reimbursed for!
There’s no sugar coating it – life insurance only pays out if the policyholder dies while it’s taken out. Sometimes there is confusion as to whether life insurance pays out for ill health, but life insurance is different to critical illness cover, which pays a tax-free lump sum in the event you are diagnosed with a critical illness.
Although conventional wisdom states that mortgage repayments should not exceed 28% of your income to be affordable, in reality many homeowners pay far more than that to keep a roof over their heads.
If you are the main breadwinner and you have dependents, life insurance may be the way to go. It isn’t mandatory and may not be right for everyone but do consider how your family would cope without your income.
Life insurance will cover the mortgage, either as a lump sum or in monthly payments, and help your loved ones remain in the family home if you pass away.
Unlike standard home insurance, indemnity insurance provides lifetime coverage in return for a one-off payment. It is mostly used in cases of non-standard material improvements to a home, such as loft conversions or extensions, which don’t comply with building regulations/ local council policy.
In a home-buying transaction, indemnity insurance is almost always bought by the seller and protects against legal action from the local authority.
Indemnity insurance offers protection against legal challenges resulting from certain issues with the property being purchased.
It usually covers a specific problem rather than offering blanket protection, so if there are several breaches of the building regulations, such as a floored attic room with skylight windows and unrelated chimney breast removal in the living room, you will be asked to buy policies relating to each issue, individually.
As a buyer, your solicitor will tell you whether indemnity insurance is required and contact the seller’s solicitor accordingly.
As a seller, your solicitor will pass on what the buyer’s solicitor has raised and advise you of your options. If you choose to buy indemnity insurance rather than risk the sale, the price can be as low as tens of pounds or as high as hundreds.
As this is a one-off outlay for both parties (once the seller pays, the buyer does not have to take it on and renew it annually), sellers are generally happy to fork out for it and keep the sale.
Mortgage payment protection insurance is one of the financial products associated with the PPI mis-selling scandal, and is no longer is as aggressively marketed as it was 10 or 15 years ago.
These days, mortgages with bundled-in or mandatory mortgage payment protection insurance caveats are rare.
If you arrange your mortgage via a broker, you may be offered a separate MPPI policy. You are under no obligation to buy it, but if you are considering some kind of repayment protection, having the quote will help you shop around for the best deals.
In the heady days of closing the deal on your first or forever home, the delight at getting a mortgage may fully eclipse any worry about a future fall in income, or how you might cope with repayments if you are struck by redundancy, disability or illness.
However if you have dependents, you may want to guarantee that should an unforeseen income problem emerge you are able to continue to keep up repayments.
MPPI generally pays out for a maximum of 12 months, although some policies will offer half or even a quarter of that time, giving you just three months of breathing space.
Everything you need to know to make sure you get the right insurance cover
Discover how to insure the cost of repairing your domestic appliances
How to cover your personal belongings if you’re renting
Learn how to protect your bicycle with specialist insurance protection
Here’s all you need to know if you have to claim on you home insurance
Insure your home and belongings against the risk of flood damage
Learn what steps to take to get the best deal on short-term home cover
Find out what is covered by accidental damage insurance