January 22, 2023
Fees Free Mortgage Team

What Insurance do I Need When Buying a House? Mortgage Protection Products

January 22, 2023 - Fees Free Mortgage Team

What Insurance do I Need When Buying a House? Mortgage Protection Products

Whether it’s your first or fifth step up the property ladder, the home buying process is always a time full of surprises, stress, and excitement. Whilst finding your dream house, getting boxes packed, and cracking open a celebratory bottle may be at the forefront of your mind, there’s often a whole to-do list of administrative tasks to sort behind the scenes before then. 

It may seem tedious, but one of the most important boxes to tick before getting the papers signed and your foot in the door is securing your insurance policies. After all, you’ll need to protect the property you’ve worked for! 

Of course, doing this is easier said than done, with the insurance options available to homebuyers and mortgage seekers often seeming endless. To help you determine exactly what package you’ll need to select at each stage of the buying process, our mortgage and insurance experts have put together this simple guide. 

Types of Home Buyers Insurance

The following list includes Fees Free Mortgages’ most highly recommended insurance products for homebuyers.

Buildings and Contents Insurance

First up on the list of home buying insurance products you should consider is home insurance – often split into building and contents insurance. 

Essentially, these insurance types work to protect both your property and a selection of its fixtures/furnishings. When secured, you can rest assured that the costs of repairing or rebuilding your home will be covered should the worst happen. Without protection, you may be left with a heavy bill to foot in the event of damage, destruction, or theft. In most cases, home insurance as a whole includes the property structure itself (and that of any outbuildings present) alongside fixtures and fittings within a predetermined boundary. The exact terms will, of course, vary according to providers and individual circumstances. 

Although there’s no explicit legal requirement to purchase home insurance, you may discover that you can’t secure a mortgage without it! Building and contents protection is a staple on the requirement lists of most lenders – after all, they’re looking to protect their investment just as much as you are! For this reason, you’ll most likely need to have a deal secured by the time contracts are ready to be exchanged in order to guarantee a successful sign-off. 

Whilst buildings and contents insurance are sold separately, it’s often more convenient to buy them as a combined package or policy – saving time and money.

Life Insurance

At first glance, a life insurance policy may seem completely unrelated to the process of buying a home – however, the two are more connected than they may appear. 

When making such a large financial commitment, it’s important to consider all eventualities – including the chance, however slim, that you may die before your mortgage completes. A life insurance policy will ensure mortgage repayments are covered in this circumstance – most often paying out a lump sum to descendants or immediate family in order to ease or erase unexpected financial burdens passed on.

There are two primary types of life insurance – level-term and decreasing term. The former pays out a set amount chosen by the policyholder in the event of death prior to mortgage completion. The latter’s payout reduces over time – often at the same rate as the mortgage balance, offering a more cost-effective option. 

A third, lesser-known type of life insurance is also available under the title ‘whole of life’. This option pays out even after completion, offering both coverage and a form of investment – albeit at a slightly higher price than its contemporaries. 

With the above considered, it’s important to note that regardless of coverage type, the amount paid is determined by you, the customer, and is most often based on outstanding balances.

Critical Illness Coverage

In the same thread as life insurance lies more niche critical illness options. This type of insurance works to protect its client’s interests in the case of them developing an illness serious enough to stop them from working and halt their income stream – e.g. cancer, or a stroke. 

Whereas with no protection, if faced with this circumstance your home would usually be at risk of repossession, with critical illness cover will most often pay out upon diagnosis, offering a financial cushion. If purchased as an ‘add-on’, critical illness cover may also pay out in the event of death. 

Much like life insurance, there are three primary types of critical illness cover: increasing cover (in which the payout figure ad premiums rise each year in line with inflation), level cover (in which they remain the same for the term of the coverage), and decreasing cover (in which they decrease year-on-year). 

As mentioned above, critical illness cover is often offered as an add-on to life insurance packages, particularly for those looking to secure insurance in the hopes of buying a home. Although this option is convenient, you won’t always find the best price purchasing together – so be sure to shop around. 

Of course, before signing onto a critical illness deal, our experts recommend double-checking the conditions covered by your chosen provider. Insurance packages are never ‘one size fits all’!

Family Income Benefit

The perfect life insurance option for those with dependants, family income benefit, or FIB operates on a similar basis to most life insurance policies with one key difference; it pays out on a monthly basis rather than with a lump sum in the event of the policy holder’s death. 

Much like most life insurance options, FIB requires you, the policyholder, to pay a premium – either on a monthly or annual basis, with cover remaining in place for a set term. Should you die within this term, you would be fully covered, with your named descendants or beneficiaries receiving monthly, tax-free income in order to replace your lost earnings. This is particularly important for mortgage holders, who, in most cases, are required to pay a relatively large monthly sum and rely heavily upon said income.

The difference between FIB and more general insurance policies lies in this term. Whilst many life insurance policies simply pay out upon death, this type is subject to a precise term – outside of which, you are left unprotected. The length of the policy also affects the length of time for which payouts are given, for example, if you took out a 25-year policy and happened to die within two years of its start date, your family would receive payouts for the next 23 years – however, if you were to die 23 years into the policy, they’d receive payments for only two. 

When looking at family income benefit coverage, you’ll need to consider a number of factors, including whether or not a monthly payment would really suit your family more than a lump sum payout, living expenses/current outgoings, and the length of the coverage (e.g. until your children are likely to be financially independent).

Homebuyers Insurance

After securing your necessary insurance packages and submitting your mortgage application or instructing a solicitor, it’s important to look into those that cover the buying process itself!

Homebuyers insurance does just what it says on the tin. It’ll work to protect you throughout the purchasing process, ensuring you’ve got a financial cushion to fall back on should anything go wrong. Although coverage may vary by provider, the vast majority of policies work to reimburse you for costs incurred for services including ‘conveyancing, mortgage fees, surveys and valuations’ should your property purchase fail due to an insured event such as the property being withdrawn from sale by the vendor for reasons beyond your control, the vendor accepting an offer a set figure greater than they’ve accepted from you,  and if the person purchasing the property dies, is made redundant, relocates, or are unable (or unwilling) to continue with the purchasing process.

Fees Free Mortgages are happy to help all buyers arrange homebuyers insurance via RhinoProtect – whether for their first or fifth purchase. For free, no-obligation advice, or to get started, fill in our simple mortgage protection contact form below.

Income Protection for Mortgage Repayments

With the big picture of completion covered, it’s time to consider the little (or in some cases, not so little) things – mortgage repayments. An income protection policy is hugely important for those relying upon month-to-month income to make their mortgage repayments. 

Income protection offers coverage in the case of most incidents preventing work and interrupting said income, for example, in the event of serious illness, an accident, or redundancy. Whilst you recover or find new work, this type of insurance will pay out a set percentage of your monthly income – for example, 70%, or up to a set monthly amount e.g. £2500. Said income can be used to cover bills including mortgage repayments, minimising the risk of issues such as repossession at the hands of unexpected and unwanted financial surprises.

Your income protection policy will cover you over a set, predetermined time period. This could be for up to one year, last for ten, or even stretch all the way up to your retirement date. Keep in mind that the longer lasting your policy, the more premiums you’ll pay – i.e. the more expensive it’ll be overall. With this being said, the team at Fees Free Mortgages find income protection to be a brilliant policy for those with monthly outgoings such as mortgages, offering both protection and peace of mind.

Don’t Know Where to Start with Home Buying Insurance?

If you’re in the market for a new home, insurance should be one of your top considerations – but choosing the right option for your unique circumstances can be tricky with so many plans available. If you’ve read through the above and don’t know where to start, or want to sign on for all important financial protection, Fees Free Mortgages can help. Our Insurance Advisor, Adelle Bright, is ready to help you select and secure the best possible insurance deals in line with your mortgage. 

Please reach out to us using the contact form below, visit us in our flagship branch, or give us a call to get started. 

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