Insurance
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
This page looks at the different kinds of insurance that you may need to take out to protect your home and cover yourself in case anything goes wrong.
When you arrange a mortgage, some lenders may insist that you take out certain types of insurance, although this is usually to protect their investment, rather than yours. You may also want to cover yourself further by buying insurance to help pay your mortgage if you die or are unable to work, or get insurance to cover the cost of replacing your belongings.
Why do I need insurance?
Insurance protects you against the risks of everyday life. For example, if your home is damaged by fire you can claim on your buildings insurance to pay for the repairs to the property and contents insurance to replace your belongings.
You may never need to make a claim, but if something does go wrong, insurance could save you a great deal of money. Deciding on what types of insurance and level of cover you need is a personal decision that will partly depend on your attitude to risk and what you can afford to pay each month.
Where can I buy insurance?
These days you can buy insurance almost anywhere - in your bank, online, over the phone or even in the supermarket. You don't need to buy all your insurance policies from the same company, so it's well worth shopping around to find the best deals for you.
There are many websites that allow you to compare policies quickly and easily to find the best one for you. Bear in mind when you are comparing prices, that different policies will provide different levels of cover and include different services.
For example:
- some policies may make you pay an excess (or set amount of money) towards the cost of a claim
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some policies will offer you a no claims bonus if you don't make any claims within a set time limit
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some policies will cover you for a wider range of accidental damage
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some companies have a free telephone helpline you can call for advice.
Tips on choosing insurance
- Visit the Money Saving Expert website for more information about how save money while insuring your home.
- It is not always easy to decide which policy to choose. Cheaper plans may contain restrictions on what is covered. Always check the small print to see what exactly is and is not covered.
- Find out more in the Information Zone at the Association of British Insurers website.
Mortgage Indemnity Guarantees (MIG)
If you need to borrow a large percentage of the value of your home, many lenders will ask you to pay for a mortgage indemnity guarantee. This is a type of insurance that protects your lender's investment in case you become unable to make your monthly repayments.
It is important to remember that a mortgage indemnity guarantee does not protect you in any way - it protects your lender. It will not help you to make your mortgage payments - for that you will need mortgage payment protection insurance (see below).
Different lenders have different rules about how large your deposit needs to be to avoid paying a mortgage indemnity guarantee. Many lenders will insist you pay for this type of insurance if you borrow more than 90 per cent of the value of the property, but some lenders will ask you to pay for this cover if you borrow more than 75 per cent.
If you fall behind on the mortgage and the lender claims on the insurance, the insurance company can claim the money back from you. Your debt is simply switched from the lender to the insurer.
What does it cost?
The cost of taking out a mortgage indemnity guarantee can vary from as little as £100 to £1,000 or more. It may be worth shopping around to find a lender who doesn't insist that you pay for this type of insurance or who charges a lower rate. An independent financial adviser may be able to help you find a policy that is suitable for you.
Mortgage Protection Payment Insurance (MPPI)
Mortgage protection payment insurance can protect you from the serious problems you could have paying your mortgage if you lost your income. It will usually cover your mortgage payments for a limited period if:
- you are made redundant (unless you accept voluntary redundancy), or
- you have an accident, or
- you develop serious health problems.
The type of cover you get depends on your circumstances and there may be some restrictions. Many policies are not available to self-employed, part-time or contract workers. In some cases, the policy will not pay out any money for up to three or four months after you stop working. Others will start after one month. Check the terms before you buy MPPI. Mortgage lenders don't usually insist you take out mortgage payment protection insurance, but you may want to consider it if you are worried about your health or your job security.
Life insurance
You may also want to take out insurance that would pay off your mortgage if you were to die. This would protect your household from the risk of eviction. Some lenders may insist that you have life insurance before they give you a mortgage.
The costs involved normally depend on your age and personal circumstances, including whether you have had any health problems in the past.
If you have an interest-only mortgage (such as an endowment, ISA or pension mortgage), this will normally include life insurance. Check your policy to see if this is the case.
Buildings insurance
If you are taking on a mortgage your lender will probably insist that you have buildings insurance. This will protect you (and your lender) from the cost of repairing or rebuilding your home if there is a serious accident such as a fire. It doesn't cover general repairs and maintenance. In most cases you will become responsible for buildings insurance from the date you exchange contracts.
If you are a leaseholder, your freeholder will insure the whole building. You will then have to pay your share of the bill, and this will normally be included in your service charge.
What is buildings insurance?
Buildings insurance covers any loss or damage to the structure of your home. Buildings insurance should cover you for:
- fire damage
- storm and flood damage
- leaking or burst water pipes
- subsidence, heave and landslip (these affect the foundations of the home)
- earthquakes
- damage caused by vandals.
However, if your property has been left empty for more than a month your buildings insurance may lapse. If you have any doubts about what is covered speak to your insurer before you take out a policy.
Costs of rebuilding
Buildings insurance has to cover the cost of rebuilding your home from scratch. Your surveyor will work out the rebuilding cost as part of your home buyer's report, as it won't necessarily be the same as the property's market value. This cost will go up over the years with inflation, and it's best to check your policy every few years, to make sure it is still adequate. Some policies allow for unlimited rebuilding costs.
Your policy may state that you have to pay an excess (or set amount of money – eg the first £200) towards the cost of a claim. This amount will vary depending on the insurer, so check your policy carefully.
Contents insurance
Contents insurance covers you if your belongings are stolen or damaged by fire, flood, subsidence or other accidents that aren't your fault. You can also choose to take out additional cover for accidental damage you cause yourself.
Some expensive goods, such as jewellery, art and antiques, may need to be insured separately. Many policies allow you to extend the cover for items you take out of the home, such as jewellery, a laptop or a bicycle.
Do I need insurance if I’m renting?
If you rent furnished accommodation, your landlord's insurance should cover anything which belongs to them, but you may still need your own contents insurance for your possessions. If you are a student, some insurance companies offer special reduced rates so shop around for a good deal.
How much do I need to be insured for?
Your contents insurance should ideally cover the cost of replacing all your belongings if they are destroyed, for example if your home is damaged in a fire. This total cost is called the 'sum insured'. Make sure this sum is enough to cover the cost of replacing all of your goods - if you buy something new, such as an expensive three-piece suite or new home entertainment systems, you may need to increase the sum insured.
You can find out more about contents insurance at the Association of British Insurers website.
Critical illness insurance
This type of insurance is designed to provide you with income if you become seriously ill, or disabled.
Critical illness cover will pay out if you are diagnosed with certain specified illnesses. However, there may be restrictions (for example not all types of cancer or heart disease may be covered), so check any policy carefully before you buy.
There are different types of critical illness cover, such as:
- fixed-term life cover with critical illness - this is where the amount you will receive remains fixed for the full term of your policy, and
- mortgage life cover with critical illness – this is where the amount of mortgage protection is reduced as the outstanding balance of the mortgage term and the size of the loan decreases.
Other kinds of insurance
You may also want or need to take out:
- insurance for your boiler or other household appliances.
- a pension
- medical/dental insurance
- car insurance
- pet insurance.
