What insurance do you need when buying a house in the UK?

In this article, we describe the most common types of insurance that you should consider buying when you buy a new home. The article will address insurances in the order that you may need them during the process of buying your home starting with one that you may wish to buy after your offer is accepted.

Homebuyers' guide to insurance

Insurance provides a sense of security and gives peace of mind in situations where an unexpected or even catastrophic event could cause significant loss. Buying a home is not without the risk of such events that could dismantle your home-buying efforts and once you have secured your home, could result in bills beyond what you can afford.

Several different types of insurance will safeguard you while you buy your home and after you have bought it. These include:

• Homebuyers insurance
• Home insurance
• Life insurance
• Sickness insurance
• Appliance insurance
• Home emergency cover

First-time buyers may never have bought these types of insurance and it can be confusing as some insurances use similar terminology whilst providing varying types and degrees of cover. This guide will help explain which types of insurance you may need when buying a house as well as how the insurance products work.

It is worth remembering that some insurances are mandatory and evidence of them will have to be presented to the mortgage lender in order to secure a mortgage but others are optional and although they are widely bought, not having them in place will not prevent you from proceeding with a house purchase.

What is homebuyers' insurance?

Homebuyers' protection insurance is insurance to cover you against financial loss if your home-buying process is adversely affected by circumstances outside of your control. There are a number of costs involved when buying and selling a house, many of which are applicable before you exchange contracts. The exchange of contracts is when both parties - the seller and the buyer - are committed to the sale and purchase of the property. These may include survey and valuation fees as well as mortgage arrangement fees.

Events that could result in financial loss to you in the run-up to completing the purchase of your home include:

• The seller pulls out of the sale
• The property valuation is more than 10% less than the accepted offer
• Your offer is gazumped by a better one
• You are made involuntarily redundant
• Property damage worth more than 10% of its value
• The property falls through because the seller is legally not entitled to sell the property

Homebuyers' insurance can alleviate worry about things going wrong before you exchange contracts and complete the purchase of your home. Largely, you don't want to be out of pocket due to a purchase falling through if there is nothing you could have done to prevent it.

At around £70 per policy, homebuyer's insurance could be worthwhile but some may deem it unnecessary. The average payout from such a policy is usually around £650 to cover your losses.

A property purchase falling through is more common than you would think - "35% of property sales in England and Wales fell through in 2023"

Source: www.quickmovenow.com

When do I get home insurance when buying a house?

You must have home buildings insurance in place before you exchange contracts on the purchase of the property. Exchanging contracts legally binds you to the purchase of the property and at this point, the mortgage lender will require evidence that the buildings insurance is in place. Buildings insurance cover is normally a mandatory requirement to protect all parties as the buyer and the lender gain peace of mind that any damage to the property is covered. Although first-time buyers are unlikely to have bought buildings insurance before, some will have experience with contents insurance to protect their possessions. Terms and conditions of policies do vary so you should compare what is covered within your policy as well as the cost of the insurance.

Buildings insurance provides cover for damage to the structure of the property and contents insurance covers your possessions within the property.

You will find more information about home insurance, both buildings and contents insurance, in our article, "What is home insurance?" but here is a quick summary:

Buildings insurance when you buy a house

• It is usually a condition of the mortgage (if you have one) to ensure buildings insurance is in place for when you exchange contracts
• Covers the amount that it would cost to repair or rebuild your home and not the cost of buying it
• Covers fixtures and fittings that form part of the structure of the building
• Mortgage lenders usually require evidence of buildings insurance
• The start date should be the same as the date that you exchange contracts

Contents insurance when you buy a house

• Covers your possessions against loss or damage
• Insures the cost of buying replacement items
• Single items of a high value may have to be declared to be covered

Life insurance for homeowners

Life insurance protects homeowners in case they die before they are able to repay the mortgage on their homes. This ensures the house can be retained within their estate and won't be repossessed by the lender to recoup the remaining balance of the mortgage.

The level of cover should be chosen to match or exceed the amount of money you borrowed to buy your home. There are two types of life insurance that you can choose between to cover your mortgage:

• Level term life insurance: the amount of cover will remain the same for the duration of the insurance policy and will pay the same amount if death happens in the first year of cover as it will if death happens in the last year of cover. It can cover a repayment or an interest-only mortgage.
• Mortgage/Decreasing life insurance: the amount of cover is set to decrease over a period of time if you have chosen a repayment mortgage where the outstanding balance will reduce as you pay capital and interest.

If you die before your mortgage is repaid, the life insurance policy will pay a lump sum of money that can be used to settle the outstanding mortgage balance. Unless your life insurance policy is assigned to the lender - lenders rarely ask for this to be done nowadays - the cash payout can be used in any way that your executors choose in line with your wishes as stated in your will.

It is wise to choose a start date for your life insurance policy that coincides with when you exchange contracts as you will be responsible for the mortgage debt from this point onwards.

You can read more in our article, "Life insurance to pay off mortgage".

Sickness insurance for homeowners

Sickness insurance will cover you in case you suffer ill health or an injury. There are two key types of insurance that will cover you for illness or injury:

• Income protection insurance: covers your income and pays you a benefit each month if you are unable to work due to an illness or injury.
• Critical illness insurance: pays a lump sum of cash if you are diagnosed with an illness that is listed within your policy terms such as cancer, heart attack or stroke.

Sickness insurance is recommended alongside a home purchase because illness or injury could affect your ability to earn a living which would, in turn, affect your ability to pay your mortgage payments. If you don't keep up with your mortgage repayments, you could risk losing your home to repossession.

Sickness insurance is usually arranged to provide a level of cover that would be sufficient to cover the essential regular outgoings of your household if your income stopped due to any incapacity. Income protection insurance can provide the amount needed for your outgoings including your mortgage payments. You can also find a similar insurance called mortgage payment protection insurance which pays an income if you are ill or injured but it can be limited in terms of how long it will pay you and what you can claim for as there are usually some standard exclusions with this type of insurance.  Critical illness cover can provide a lump sum of money which can pay for one-off costs such as private medical treatment or paying off debts or your mortgage to make your budgeting easier. Private medical insurance can cover the cost of private medical needs to avoid NHS queues that may cause longer periods of time off work.

You can read more about sickness insurance in our article, "Critical illness vs Income Protection: Which is best?". You can explore private medical insurance in our article, "Is private health insurance worth it?".

Other insurance that homeowners should consider

• Appliance insurance
• Emergency home cover
• Boiler insurance

What is appliance insurance?

Appliance insurance covers the cost of repair or replacement if an appliance is damaged or breaks down. You may wish to consider this type of insurance if you have a busy household that would require appliances such as washing machines and fridges to be fixed quickly if they were to break down. Appliance insurance is also useful if you would struggle to find the funds to pay for a replacement appliance if it were to break down and if it is outside of its initial warranty period. Most new appliances are covered for an initial period of time and generally, appliances will be expected to be covered for the first 6 months after purchase as a minimum.

What is emergency home cover insurance?

Emergency home cover can give homebuyers peace of mind that if big things go wrong in their new home, they won't be hit with the large cost of putting these right. This type of insurance may appeal to those who have depleted most of their savings during the home buying process.

Emergency home cover usually includes the cost of repairing or replacing the following:

• Boiler
• Heating system
• Gas pipes
• Plumbing & drainage

It can also cover things like accidental damage, home electrics and drains.

Summary

Buildings insurance is the only insurance that is mandatory during the house-buying process, however, many of the other insurances mentioned in this article offer peace of mind and support in circumstances where unexpected events cause serious financial hardship.

Buying a home is undoubtedly one of the largest financial commitments any of us make and creating safeguards along the way can be sensible. It is worthwhile to consider each event to work out how you would cope if it were to happen to you as this will ultimately help you to decide whether you need insurance.