Home, contents and personal insurance
When you buy a property, there are several types of insurance you can get. You can protect everything: your life, health, income, buildings and their contents, and more. Most lenders insist that you get buildings insurance as a minimum, to protect their investment. What you get over and above that is then totally up to you – but you’ll probably need some guidance!
Take the time to talk to a First Mortgage advisor about the products available and what they cover. Below are some of the types of insurance that an advisor will discuss with you.
Buildings and content insurance
There are two different types of home insurance: buildings and contents cover.
|Type of home insurance||In a nutshell||In detail|
|Buildings insurance||This covers the structure of your home, everything from the roof, walls and windows to the permanent fixtures such as your bathroom suite and fitted kitchen.||Most building insurance policies cover the cost of repairing your home if it is damaged by fire, flood, storm or subsidence. They don’t cover general wear or tear and aren’t valid for properties left empty for months at a time. It’s usually a legal requirement to have buildings insurance – something lenders insist on before they are prepared to loan you any money. In any case, it’s a worthwhile investment as repairing your home after a major incident is generally very expensive.|
|Contents insurance||This covers everything else, all your possessions (including what you have in your garden and shed).||Contents insurance covers your possessions for loss or damage – for instance, if you are burgled or if there’s a fire or flood. You can add extras on to basic contents insurance that cover more expensive items or insure items even if you’re away from home.|
It’s not something we like to think about, but this is an important policy that will pay your dependents a lump sum or regular amount if you die.
It means that should the absolute worst happen, your loved ones will at least have financial security as the amount paid out usually enables them to pay off the mortgage and continue living in their home. You may already have life insurance cover as part of an employee package: it’s worth checking what you have and what it covers as you may not need a personal policy, or to just get a top up of cover.
There are different types of life insurance: some protect a mortgage and some protect your dependents. Your First Mortgage advisor can look through the options and suggest which might suit you best.
Perhaps the most common types are ‘decreasing term’ and ‘level term’ insurance. Decreasing term cover is generally cheaper as it is designed so that the level of cover decreases each year in line with the mortgage being repaid. Level term cover means that your family will be paid an agreed lump sum should you die within a fixed term. The payout they get doesn’t vary, but the longer the term and the higher the payout, the more you pay in premiums.
Critical illness insurance
Something else we don’t like thinking about, but it’s vital to have it covered, just in case – this type of cover pays out a lump sum or an income if you’re diagnosed with a specific serious illness, such as certain types of cancer or multiple sclerosis.
It will also support you financially if you suffer a heart attack or stroke, or are disabled after an injury or illness. Policies differ but most will not cover any health problems you have already. If you couldn’t support yourself or your dependents if you become too ill to work, then this is worth taking out.
Mortgage protection insurance (MPI) / Payment protection insurance (PPI)
Should you have an accident, become ill or lose your job, this type of cover will pay your monthly mortgage, loan and credit card payments. If you could get by on sick or redundancy pay, or have a fair amount of savings, or are confident your partner could pay all of your combined costs whilst you are unable to work, then you won’t need this, but it is a useful safety net if you can afford the payments.
Keeping costs down
Not all policies are equal, and the cost for each varies dramatically. The best course of action is to get professional advice from your First Mortgage advisor to make sure you are not paying over the odds. Here are some basic tips for keeping the cost of insurance down:
Joint versus single policy
When buying life term insurance, you can get a single policy or a joint policy. Buying a policy each means the premiums will cost more, but you will get a payout each when each of you die. If there’s just the two of you with no dependents, it’s cheaper to get a joint policy as you’ll only require one payout to repay the mortgage.
Full disclosure is the way to go
Pricing radically changes depending who you are, so it’s important to disclose everything. Telling your insurer everything – all past conditions and any risks – is important, otherwise, they could use non-disclosure as an excuse not to pay out.
Smoker versus non-smoker
Non-smokers pay a lot less than smokers as they are a lot less likely to die during the term. If you were a smoker when you took out a life-insurance policy but have since given up, you could now get cheaper cover. Most insurers insist that you’ve been nicotine-free (including e-cigarettes and other nicotine replacement therapies) for at least a year, some up to five years, before they will review your policy.
Put your policy in trust
If you die your life insurance forms part of your estate and will be subject to inheritance tax. But if you write your insurance into Trust when you take the policy out, the eventual payout goes directly to your dependents without attracting any tax. Most insurance policies include the paperwork for writing into trust so it’s relatively straightforward to set up.
What happens next
Your First Mortgage advisor will look at what insurance you need alongside your mortgage and can arrange the policy for you. Like our mortgage service, there’s no charge to you to advise and set up your policies.