What Insurance Do I Need When Buying a House? Your Guide
If you're buying a house with a mortgage, you’ll need insurance to meet lender requirements and protect your investment. Our expert guide explains the options.
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Buying a home can be a complicated and stressful process. Whether it’s your first purchase or your next investment, you’ll be juggling paperwork and finances while making sure you have the right insurance policy to protect you.
Working out the best home insurance to get can add to your hassle. To help you save time and worry, we’ve created this guide to the kinds of protection you need and how to choose the best home insurance plans.
Key takeaways
- Although home insurance isn’t legally mandatory in the UK, you should consider protecting your investment with some form of insurance when you buy a property.
- Some insurance can protect your buildings and contents, while others will help you or your loved ones cover your mortgage repayments if you become ill or die.
- Mortgage lenders may require you to take out buildings and life insurance.
- To choose the best policies for your situation, consider how much cover you need and whether combining plans can save you money.
Is home insurance mandatory in the UK?
In a legal sense, home insurance isn’t mandatory in the UK. However, if you’re taking out a mortgage, the lender usually requires you to have enough buildings insurance to cover the cost of rebuilding the property should the worst happen.
The reality is that your property secures the loan. In other words, if you don’t repay your mortgage for any reason, the lender can take the home—the collateral—to recoup the loss. It stands to reason that the bank or lending institution wants to avoid losing out if your home is damaged or destroyed. That’s what insurance is for.
Types of insurance to consider when buying a house in the UK
Several types of home insurance are available to protect your investment in various ways. While there’s no legal requirement to take out any kind of insurance, the right policy—or several—can be an essential part of your financial portfolio and worth investigating.
Buildings insurance
Buildings insurance covers the structure and fabric of your property, as well as any installed fixtures and fittings. It pays for some or all repair and rebuilding in the case of damage or destruction. Fire, flood, storms, and vandalism are typical causes.
Contents insurance
Contents insurance covers the cost of replacing your possessions in the event of damage, destruction, or theft. It typically includes all non-fixed items, such as furniture, kitchen tools, home office equipment, electronic devices, accessories, clothing, and everything else in your home. You can purchase a contents policy separately or in combination with buildings insurance. It may also cover belongings outside the home, such as bicycles.
Landlord insurance
If you plan to rent your property or any part of it, landlord insurance can help you get more protection in this sometimes risky scenario. For example, it can cover you if your tenants damage your property or they don’t pay the rent. It’s also important to update your insurance policies if you transition existing property to renting. Failing to do so could invalidate any home insurance you already hold.
Life insurance
Life insurance will pay your loved ones a lump sum or a regular amount if you pass away. It can help cover the mortgage repayment so your family doesn’t have the burden of an enormous bill. However, there are different forms of life insurance to evaluate. Term life insurance covers you for a certain period, while whole life insurance, as the name suggests, covers you for your entire life, no matter when you pass away.
Critical illness
Critical illness insurance pays a lump sum that can cover your mortgage payments if you become too sick or disabled to work. Cancer, Alzheimer’s disease, a heart attack, or an incapacitating stroke are just a few examples. The payment can help you and your family stay secure in your home when it’s needed most.
Income protection
This kind of home insurance provides a regular payment if you’re ill or injured to the point that you can’t work. The payment will usually be a percentage of your usual salary, which can help you keep your home even if your financial circumstances change dramatically.
However, income protection insurance can be more expensive than critical illness coverage because it’s usually more wide-ranging and may include circumstances other than illness. In addition, income protection usually has a deferral period, during which you must wait to receive a payment.
What insurance do I need for a mortgage?
For mortgage approval, you may need two specific types of insurance:
Buildings insurance
For mortgage approval, you’ll usually need building insurance. You must have this in place so the lender can release the funds to make the completion of the sale possible. However, if you’re purchasing a leasehold flat, the freeholder may already have buildings insurance. Be sure to double- and triple-check your insurance coverage so there are no obstacles to getting your mortgage.
Life insurance
Some mortgage providers will ask you to have life insurance to ensure the loan is repaid even if you pass away. However, this isn’t always the case since many lenders don’t require life insurance for mortgage approval. Even so, it’s worth considering to avoid the potential impact on your loved ones if you pass away with the mortgage unpaid.
Mortgage providers don’t require any other type of insurance, but good insurance coverage can give you peace of mind. Critical illness or income protection insurance can help you keep your home if sickness or injury prevents you from paying your mortgage repayments. But no matter your situation, a mortgage loan is a significant responsibility that warrants planning for future possibilities.
How to choose the right home insurance policy
To choose the right home insurance policy for you and your property, here are the questions you need to ask:
- Do you need a combination of buildings and contents insurance? If so, think about getting a combined policy, which is usually cheaper than buying them separately.
- Do you want cover for extras like accidental damage and valuables outside the home? If so, check what’s included in the policy and what you can add as an extra.
- Are you planning to live in the property or rent it out? If you want to rent, purchasing landlord’s insurance can help protect the home against the cost of tenant damage.
- Are you prepared to pay a higher excess fee? Higher excess payment can sometimes lower the cover’s monthly or annual premium cost.
- Can you get a discount by bundling different kinds of cover, such as car and home? Many insurance companies offer various types of bundles.
- What levels of cover do you need? You may need a higher cover limit if you have a valuable home or possessions.
- What is the process for claiming? Some providers have a 24/7 claim line or app.
- Does the provider have a good reputation for customer service? Reading customer reviews is a good way to learn about others’ experiences.
FAQs
What insurance is compulsory when buying a house?
No insurance is legally compulsory when buying a house. However, your mortgage provider will probably ask you to have sufficient buildings insurance to cover the cost of rebuilding the property if it’s damaged or destroyed. Some lenders might also ask you to get life cover for mortgage approval. You might want to consider other forms of insurance, including life insurance and contents insurance, as well as a form of income protection.
Do I need to insure a house before completion?
You’ll usually need buildings insurance in place from the contract date, even if some time passes before your purchase is completed. That’s because, at the moment the exchange takes place, you become legally responsible for the property and will need to pay for damages if anything happens to it. Your mortgage company will usually ask for proof of insurance before it releases funds to complete the sale.
How much is home insurance in the UK?
The cost of home insurance in the UK varies according to the type of cover you need and the specifics of your property, such as age, location, and security features. As of this writing, the average cost of a combined buildings and contents policy was £375, according to the Association of British Insurers.