Buying a home is exciting and will likely become your most valuable asset, so it’s important to consider insurance as part of the expenses you need to know about – so you can best protect your property in case the unexpected happens.
Insurance offers peace of mind in exchange for a monthly premium (and usually an excess if you must claim), but which policies are worth considering?
We explore various insurance policies homebuyers must know about.
Home insurance
Home insurance usually covers buildings and contents insurance. Buildings insurance covers the cost of rebuilding your home if the structure, such as the walls, roof, or permanent fixtures, are damaged or destroyed, whether it’s by a storm, fire, earthquake, water leak, vandalism, or subsidence.
If you are buying a home with a mortgage, buildings insurance is usually compulsory and should cover the rebuilding cost (not the market value).
You can use an online calculator or talk to a broker to ensure correct coverage, including accounting for other factors, such as living in a high-risk flood area.
Contents insurance covers belongings against theft, fire, flooding, burst pipes, and sometimes accidental damage. The average annual cost of home insurance is £225, according to Go.Compare.
While home insurance is expensive, without it you would have to pay to rebuild your home, or replace valuables if anything happens.
Life insurance and critical illness
There are different types of life insurance policies that offer financial security for dependents if you die by paying a pre-agreed lump sum or regular payments tax-free (inheritance tax may apply). You can also add-on extra cover such as critical illness to some policies.
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The average life insurance payout is £79,703, according to the Association of British Insurers. It is often used to cover an outstanding mortgage, but can be used for other costs.
You can choose from a joint policy that pays out once after the first policyholder dies (and then ends), or two single policies, which will pay out after each individual passes away.
If your partner or dependent, such as a child, will struggle financially if you die, it’s worth considering life insurance, but premiums can rise with an increasing term policy. If you’re single with no dependents, it may not be suitable.
Critical illness insurance offers financial support by paying a lump sum if you are diagnosed with a specific illness, disease or disability, including cancer, heart disease, or stroke.
It doesn’t cover everything, so it’s worth checking any exclusions beforehand. You can get a single or joint policy, and the cost will vary depending on different factors and if it’s combined with life insurance.
The average annual cost of life insurance and critical illness is £295.92, according to Legal and General, with factors such as age, health, occupation, lifestyle, and medical history affecting premiums. It’s also worth checking if you’re covered by other policies you may have, including from your employer.
Income protection
If you ever worry about how to pay the bills if you have an accident or illness, income protection can be helpful. With income protection, you are paid a regular monthly amount until you either return to work, retire, die, or your policy ends.
It’s useful to have, but it only covers between 50 per cent and 65 per cent of your monthly income, so you will likely have a shortfall, and you must wait for a pre-agreed period before payouts start, known as the deferred period.
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Income protection may be worth considering if, after an accident or illness, you’ll have to rely on statutory sick pay, have little savings, are self-employed, or have no support available from family and friends.
The cost of income protection can vary, as factors such as age, occupation, health, lifestyle, illnesses covered, and deferred period can affect premiums, but an online calculator can offer an estimate.
Choosing the right insurance
Deciding on the right insurance policy can be difficult, but it can be a vital financial lifeline if the worst happens, especially if you have dependents and no savings.
It’s worth doing your research, understanding what is covered, and any exclusions. In some cases, you may opt for add-ons to your policy to ensure more extensive coverage.
You could also talk to a broker who can help you find the right policy based on your circumstances – and don’t forget, other products or services you already pay for, such as a premium bank account, may well come with certain insurance policies included, so always check.
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