Buying a home is an exciting milestone and likely the most valuable asset you will ever own. It is crucial to consider insurance as part of your home-buying expenses to protect your property against unexpected events. Insurance provides peace of mind in exchange for a monthly premium and usually an excess if you need to make a claim. But which policies are worth considering? Here we explore the essential insurance policies every homebuyer should know about.
Home Insurance
Home insurance typically covers buildings and contents. Buildings insurance covers the cost of rebuilding your home if the structure—walls, roof, or permanent fixtures—is damaged or destroyed by events such as storms, fire, earthquakes, water leaks, vandalism, or subsidence. If you are buying with a mortgage, buildings insurance is usually compulsory and should cover the rebuilding cost, not the market value. Use an online calculator or consult a broker to ensure correct coverage, especially if you live in a high-risk flood area.
Contents insurance protects your 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 it is an expense, without it you would have to pay to rebuild your home or replace valuables if something goes wrong.
Life Insurance and Critical Illness Cover
There are different types of life insurance policies that provide financial security for your dependents if you die, paying a pre-agreed lump sum or regular payments tax-free (though inheritance tax may apply). You can also add critical illness cover to some policies. 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 a joint policy that pays out once after the first policyholder dies and then ends, or two single policies that pay out after each individual passes away. If your partner or dependent would struggle financially if you died, life insurance is worth considering, but premiums can rise with an increasing term policy. If you are single with no dependents, it may not be suitable.
Critical illness insurance provides a lump sum if you are diagnosed with a specific illness, disease, or disability, such as cancer, heart disease, or stroke. It does not cover everything, so check exclusions beforehand. You can get a single or joint policy, and costs vary depending on factors like age, health, occupation, lifestyle, and medical history. The average annual cost of life insurance and critical illness is £295.92, according to Legal and General. Also check if you are already covered by other policies, such as from your employer.
Income Protection
If you worry about paying bills after an accident or illness, income protection can help. It pays a regular monthly amount until you return to work, retire, die, or the policy ends. It covers between 50% and 65% of your monthly income, so you will have a shortfall, and you must wait for a pre-agreed deferred period before payouts start.
Income protection is worth considering if you would have to rely on statutory sick pay, have little savings, are self-employed, or have no support from family and friends. Costs vary based on age, occupation, health, lifestyle, illnesses covered, and deferred period. An online calculator can provide an estimate.
Choosing the Right Insurance
Deciding on the right insurance policy can be challenging, but it can be a vital financial lifeline if the worst happens, especially if you have dependents and no savings. Do your research, understand what is covered and any exclusions. In some cases, you may opt for add-ons to ensure more extensive coverage. You could also talk to a broker who can help find the right policy for your circumstances.
