There are a number of insurance policies you should consider once you have decided on the home of your dreams. You might not need them all, but it’s good to assess the options. Joanne Atkin explains
If you have a car, you must have car insurance and you might possibly also opt for breakdown cover. If you have a pet, you may want to consider pet insurance. As for your body, there is private health insurance and dental insurance available.
For homeowners other insurance options range from general insurance products, such as buildings and contents, to protection products, like life insurance, income protection and critical illness.
The only compulsory insurance for people with a mortgage is buildings cover. Your lender will want to know that the property can be rebuilt if the worst happens. If your house burns down, for example, and you’re not insured, you are left with no home but saddled with a large debt to your lender.
Buildings insurance should cover the rebuild costs but it will also help in less extreme circumstances, such as damage to walls, windows and the roof. It should also cover certain items outside the house, such as the garden and outbuildings like garages or greenhouses. Having said that, it is important to check exactly what you are covered for as policies can differ.
You do not have to take out the buildings cover offered by your lender and it’s wise to shop around – not just to get a competitive price but also to get the best cover to suit your needs.
When you take out buildings insurance it can be cheaper, and more convenient, to take out contents with the same provider. Contents insurance is not compulsory although it is wise to have both the inside items as well as the structure of your home insured.
Contents insurance will cover the things that your buildings insurance doesn’t so this could be carpets, curtains, furniture, electrical appliances, books, jewellery and so on. It’s a good idea to write down what you own and add up the total cost. You may be surprised at how much it comes to. Include clothes, shoes, toiletries, bed linen, towels, food, kids’ toys – the list goes on. If you have very expensive items, check with your insurer as you may have to declare them separately to ensure they are covered.
Most contents policies these days are written on a ‘new for old’ basis. This means that you will not be given the money to buy new items, instead you will be offered a replacement. For example, if your television is stolen you should receive a new TV and not the monetary value of the original cost of the television.
Insurers also ask for receipts so keep hold of them, especially for more expensive items like electrical appliances, furniture and so on. Insurance companies often have agreements in place with major retailers to provide them with items for the claimant. If the claim is for a relatively small amount of money some insurers will give you a prepaid card topped up to the value of your losses.
Extra cover
If you want further protection on your buildings and contents insurance there are extras that can be added but you pay more for them.
There is usually an excess to pay when making a claim, which means you must fork out the first x amount on a claim. When choosing your policy you can elect to keep the voluntary excess at £0 or a higher amount, but insurers often have a compulsory excess as well.
Buildings insurance will not cover you for general wear and tear of the building, for example, if your roof leaks the insurance company may put this down to wear and tear. If this is the case the insurer will not pay for damage to the roof or any internal damage that has been caused. However, if you take out accidental damage on the insurance policy it may cover the cost of repairing the internal damage to the ceilings and walls. It’s best to check with your insurer exactly what is included in accidental damage cover.
Some policies will cover you for loss or damage to items you take out of the home, such as losing your handbag, but again you must check if this is included and if not, how much extra it will cost if you want this insurance.
If you don’t make any claims you will build up the right to a no claims discount which will make your policy premium cheaper.
Insurers also take into account any burglary prevention methods you have. This would include installing a burglar alarm – as long as it’s used at all times – and having window locks and doors that pass certain security specifications.
Protection insurance
Protection policies cover you in the event that you are unable to work due to unemployment or illness. There are short-term and long-term protection policies.
Short-term income protection policies, also known as accident, sickness and unemployment (ASU) products, will generally only pay out for one or two years. These include payment protection insurance (PPI), which has had so much bad press due to mis-selling of these policies. PPI generally covers the cost of repaying credit cards, store cards and personal loans.
Then there is mortgage payment protection insurance (M PPI), which should not be tarred with the same brush as PPI. Most PPI and MPPI policies will only start covering repayments after a waiting period, for example, 30, 60 or 90 days.
MPPI
Mortgage payment protection insurance is a short-term product which pays your mortgage if you are made redundant or have to give up work because of illness or injury.
If you find yourself moving into mortgage arrears you may be able to get some help through the support for mortgage interest (SMI) scheme but this is very limited. You must be claiming benefits but you can’t claim SMI for the first 13 weeks of unemployment or illness. In addition, SMI will not pay the amount you borrowed – only part of the interest on your mortgage.
Income protection
On a more long-term basis, the main options are income protection and critical illness. As a general rule income protection is more expensive than critical illness as it covers a much wider range of illnesses, and these can be short or long term.
Income protection covers you if you are unable to work due to sickness or injury and will pay out a regular income until you are well enough to work – or not, as the case may be. This could potentially pay out a claim for the long-term but check with the insurer if there are any limits on this.
With income protection you take out a premium according to a percentage of your salary, rather than the cost of the mortgage. There may be exceptions to the type of illness or injury the policy covers so you would need to clarify this. Many policies won’t include self-inflicted injuries or misuse of drugs or alcohol or even some conditions such as HIV or AIDS, although more insurers have been adding the latter to their list.
Critical illness
Critical illness insurance pays out one large lump sum in the event of a serious illness. Policies can vary widely on what is defined as a critical illness, such as heart attack, stroke, multiple sclerosis, motor neurone disease, loss of limbs and cancer, to name a few. But it may not pay out, for example, in the early stages of cancer, so you really need to check what exactly it does cover.
You must tell your insurance company of any pre-existing medical conditions otherwise your claim may be refused.
Life insurance
Life insurance is also known as term assurance or death benefit. If you die within the agreed policy term, your chosen beneficiary will receive an agreed lump sum. Life cover is often taken out alongside a mortgage to protect repayments if you die. With term assurance, which is usually linked to the length of the mortgage, if you don’t die within that time you don’t get your premiums back. This type of insurance is most suited for people with dependents.
Shop around
It’s always best to shop around. You can use price comparison websites to get an idea of what is out there (you can’t buy critical illness cover on the internet) but be careful with these as they don’t include all insurance companies. Also, the cheapest policy will often be very low on the cover it actually offers but at least you can get an idea of what’s available.
You can speak to your lender, or go to a specialist intermediary who will be able to go through all the options and find out what’s right for you. wm
