How to protect your home and family

Your house is likely to represent your biggest ever purchase, so it’s vital that you protect it and yourself from the effects of the unforeseen.

The process of buying a home can be costly.  Some costs are optional or can be delayed, but others are unavoidable, including insurance.

Read this article to learn about the types of insurance products involved in buying a home, what they do, why you might have them and how to get the right cover for you.

What insurance do you need when buying a home?

When buying a home, you encounter lots of different types of insurance products, such as:

• Buildings Insurance
• Contents Insurance
• Life Insurance
• Critical Illness Insurance
• Income Protection Insurance.

It’s almost a foregone conclusion that you end up having to buy a buildings insurance policy to protect your new home, as your mortgage lender will insist on this.

You are also likely to want to protect your possessions and your ability to repay the mortgage if something happens to you.  This is where contents, life, critical illness and income protection insurance come in.

Where can you get help to get the right cover?

You can buy your insurance from a number of locations:

• Comparison sites
• Your lender
• Your mortgage broker
• A specialist insurance broker

Comparison sites won’t give you any advice and it’s your responsibility to ensure the policy you have bought is suitable for your needs.  This can also be the case with lenders, mortgage, and insurance brokers.

If you want peace of mind, ensure that whoever you are buying the policy through can offer advice and confirm with you that the policy you are buying meets your needs.

What to look out for

If you’re buying any of the life covers from your mortgage broker, make sure they:

• Aren’t ‘tied’ – this means that they usually only work with one insurance company, so you won’t get a full market appraisal for price and provider. You could end up paying more and miss out on better products
• Don’t have rated premiums – this means you’ll pay more for your cover than elsewhere.

If you plan to deal with any broker, whether that’s your mortgage broker or an insurance specialist, ask if you’ll receive advice.  The process may take a little longer, but having advice gives you the reassurance that what you’re buying is suited to your requirements.

If you’d like our assistance, you can book a free chat to discuss what cover you need.

How do you ensure the mortgage gets paid even if something happens to you?

When you become a new homeowner with a mortgage, you make a long-term commitment to the lender to repay that mortgage every single month for up to 25 years or more.  A lot can change in that time, even your health.

The average age of first-time buyers has risen to 33 years old.  According to Liverpool Victoria, before reaching the age of 68, a 33-year-old person who doesn’t smoke has the following risks:

These figures get worse if you smoke.

Do you need to protect yourself, your family and your home?

There is no legal obligation for you to have cover if something happens to you, but if you have a family who rely on your income to provide a home and support their lifestyle, you should consider how they’d cope if that income was suddenly lost.

If your family home is at risk because the mortgage can no longer be paid or your family’s day-to- day lifestyle is impacted, you can mitigate these risks by using one or more of these products:

• Life Cover – Pays out a lump sum if you were to die.
• Critical or Serious illness – Pays out a lump sum if you are diagnosed with an illness from a predefined list of covered illnesses.
• Income Protection – Pays out a percentage of your salary if you are unable to work due to accident or illness until you can return to work.

How can you tailor insurance to protect your family and your home?

When considering products like life insurance, critical illness and income protection, it’s important to seek advice to ensure these products are suitable for you.  To give you an idea of what you might need, you can use our life insurance calculator, Shouldi.  And of course, our experts are on hand if you’d like to talk it through.

How does life cover help you pay off your mortgage and replace your income?

If you have a mortgage, you might want to consider having life cover to pay off the outstanding mortgage if you die.  If you’ve bought your property with your partner, you can have a joint policy that pays out if either of you pass away.

It’s worth considering the wider financial implications of death though, especially if you’re the main breadwinner.  It will be helpful for your family to have the mortgage paid off, but if they can’t afford the costs of day-to-day living in the property, they may still struggle without your income.

It’s less than ideal to have a nice house that has to be sold because your partner can’t afford the mortgage on their own or can’t afford to pay the bills. 

How would critical illness insurance help me?

As you can see from the stats above, the risk of death is relatively slim, it’s illnesses that are more likely to affect you.

Critical illness insurance pays out a lump sum if you were to suffer a life changing illness like cancer or a heart attack.  By covering yourself to the value of your outstanding mortgage, it would be paid off if you were diagnosed with one of the conditions covered.

It would be a shame to have to sell you house because your illness affected your ability to work and you could no longer afford the mortgage.

And what about income protection?

First off, you should know that income protection isn’t available for serving members of the armed forces. However, if you’re married to someone in the forces and work yourself, then income protection can be a great way of protecting your income if something happens to you that prevents you from working.

Whilst a critical illness policy pays out a lump sum, income protection pays out a percentage of your annual earnings, typically up to 65% if you’re unable to work due to accident or illness.  These payments continue (depending on the type of product you buy) until you can go back to work.  And if you never return to work, payments continue until your retirement age.

Unlike critical illness, the income protection doesn’t stop after the first claim. You can be off ill more than once over the lifetime of the policy.

Income protection is a great way of ensuring you can keep up with paying the bills even if you can’t work.

Buildings Insurance

What does buildings insurance do?

Buildings insurance covers the cost of repair to the building from the following events:

• Fire and explosions
• Storms and floods, fallen trees
• Theft/attempted theft
• Vehicle collision
• Subsidence
• Frozen and burst pipes
• Vandalism

The policy should cover the full cost of rebuilding the property and any associated costs such as demolition and site clearance.  Other buildings such as garages, sheds and outbuildings are also covered.

When do I need buildings insurance?

If you buy in England, you need your buildings Insurance policy in place for when you exchange contracts.  It’s slightly different in Scotland, but suffice to say it’s still needed and should be in place to start on the day you are due to take possession.  Either way, your solicitor won’t go ahead with the transaction without a policy in place.

This means you need to organise quotes and purchase the cover in advance, supplying the details to your solicitor in good time to prevent unnecessary delays to the purchase.

If you buy a leasehold property, typically a flat, the building freeholder is usually responsible for the buildings insurance, sharing the cost amongst the leaseholders within the service charge.  The freeholder isn’t obliged to provide cover, something which your solicitor will advise you on as part of the sale if necessary.

If you’re buying a property without a mortgage you don’t legally need buildings insurance, but if you couldn’t afford to repair the building if something significant happened, buildings insurance might not be a bad idea.

Why do you need buildings insurance if you’re not the owner yet?

As you now know, your mortgage company will insist on you having buildings insurance.  It’s there to cover the cost of any remedial work that is needed should something happen to the building.

Once you’ve exchanged contracts, the property is in a sort of limbo in terms of who is responsible for the building.  If something does happen and you’ve exchanged contracts, you’re still legally bound to complete the purchase, and if you don’t have cover you may face significant costs you weren’t expecting.

Contents Insurance

What is contents insurance?

Contents insurance is designed to cover the possessions inside your property and any outbuildings, sheds and garages. It pays out if you have:

• A fire
• A flood
• A theft.

Broadly, anything in your property that can be physically moved is covered under a contents policy and can include:

• Furniture
• Entertainment
• Kitchenware
• Soft furnishings
• Electricals
• Toys, ornaments and antiques
• Clothes and jewellery.

This is by no means an exhaustive list and you’d be surprised at how quickly all of these items add up in value.

How does contents cover work?

Commonly there are two types of contents policy:

1. Indemnity – The insurer will take into account the age and wear and tear of your items, so you might not receive the full replacement value should you make a claim.
2. New for Old – The insurer will replace your items or offer you the cash value for a current equivalent item.

New for Old policies could cost you more as the pay outs are likely to be higher.

How much cover do I need?

It’s important to understand how much you should be insured for.  You don’t want to be over insured as you’ll be wasting money. But you don’t want to be under insured either.

Think to yourself, ‘if the house burnt down, how much money would I need to replace all of my possessions?’.

In order to come up with the number, think about how much the items in your house are worth, room by room.  The total you come to is how much cover you need.

Do I have to have contents insurance?

There is no obligation on you, the property owner, to have contents insurance.  It’s optional but is a good idea if you couldn’t afford to replace your stuff if there was a fire, flood or theft.

What next?

Now you have a good understanding of the different insurances you need to protect yourself, your home and your family.

You can use our life insurance calculator, Shouldi, to assist you in understanding how you might design a life, critical illness and income protection solution around your requirements.

Or if you’d prefer, we’d be delighted to have a chat with you to help you understand what’s best for you.  We can assist you with any of the products discussed in this article.

Mortgages:

Batsrock Limited, trading as Stag Protect, acts as an intermediary for the purposes of introducing its customers to Yes Mortgage Services Limited, part of the H L Partnership.

YES Mortgage Services Limited is an appointed representative of H L Partnership Limited which is authorised and regulated by the Financial Conduct Authority. YES Mortgages Services Limited is a company registered in England and Wales with company number 08872874. The registered office address is Yes Mortgage Services Limited, Four Winds, 22 Windmill Lane, Avon Castle, Ringwood, Hampshire, BH24 2DQ.

You will not receive advice or any recommendation from Batsrock Financial. Such services will be provided by Yes Mortgage Services Limited.