Home Buying Guide: Insurance & Other Legal Matters

Introduction

When you buy a new home, it is important to think about insurance and any other affairs connected to the purchase of your home, especially if you are a first-time buyer. This section contains introductions to all kinds of insurance policies which are related in some way to buying, owning and paying for a home. You have made a large investment, and you need to protect it, including from a situation where you are unable to continue to pay off mortgage loans. In this section you will find introductions to the different types of insurance you will require - this is particularly important for first-time buyers who are buying this insurance for the first time.

Household Insurance: Buildings and Contents

You now own a new home, so it is essential to protect it, and also all your possessions. Household insurance has two parts - buildings insurance and contents insurance. They can be bought separately, though some insurance companies offer a single policy covering both which can save you money.

Buildings Insurance provides cover for the property itself, including basic essentials such as kitchen and bathroom fittings (sink, toilet, bath etc) and running water. It also provides cover for events such as fire, flood or even subsidence.

When buying a home, make sure that you have arranged for insurance cover on your new home to start on the day you exchange contracts. If you are not a first-time buyer, arrange for the insurance on your previous property to continue right up until the day you exchange, in case the deal falls through.

If your home is part of a larger building, such as a block of flats, your buildings insurance may be bought in a joint policy by everyone in the building so you will only need contents insurance, or if it is a leasehold then the freeholder may have insurance - check up on these.

With property values fluctuating so much, it is not always clear how much your property should be insured for. It is not the market value, but the amount it would cost to rebuild it that gives a more stable value for an insurance policy - including the costs of clearing rubble and architects' and surveyors' fees, as well as building materials and labour. Check your survey or valuation details for the rebuilding costs, which will be listed under the term 'reinstatement'. The Association for British Insurers (ABI) also has a leaflet on how to work out reinstatement costs, or you can check with your surveyor.

What If Insurance Is Refused?

Sometimes properties are difficult to insure because of past problems in the area concerning flooding or subsidence. It will usually be a term of your mortgage offer that suitable insurance is arranged and so if you are borrowing money insurance will be essential. Bear in mind that this could in future make the property difficult to sell, but if the price is right and you still wish to continue there is an arrangement where the existing insurer will normally continue to offer cover for domestic premises. So check with the sellers who their insurer is and contact them directly yourself.

Legal Expenses Insurance is usually part of the cover offered with the buildings insurance. This can be useful as it provides access to private legal remedies for things like nuisance neighbours or disputes over a private roadway. Check the premium and the level of cover but it could be a worthwhile investment.

Contents Insurance insures all your possessions inside your home. You may be surprised how much your possessions are worth - even if you are not a big spender, they can be worth tens of thousands of pounds. 'Contents' refers to everything from furniture and carpets to jewellery, cameras and clothes. It's up to you exactly what your insurance policy covers and the price depends on how much it covers. The policy will state an overall limit on the amount you can claim, called the sum assured, and there is also a minimum sum assured which is normally in the region of £30,000 although some insurers will quote for less.

To work out how much cover you need, make a list of everything in each room and how much it is worth or would cost to replace. Remember to include furnishings, carpets and other fittings, and clothes and food, as well as more obvious items like TVs and jewellery. Insurance for items which you take outside your home such as bicycles, musical instruments, sports equipment and so on may also be included in your contents insurance. Often this is set up to a general limit, so if you need extra cover for more valuable items then you will need to ask for this limit to be increased. You can also ask for cover to be removed if you do not need it, so check what your policy includes - often standard policies include items like cash and cards left at home and frozen food up to a certain limit in case your freezer breaks down which you may feel are not worth paying for. You can reduce the cost of your insurance premium by agreeing to an excess on any claim, on both buildings and contents policies. This is where you pay the first part of any claim; for example, if your TV is stolen and you have agreed to a £50 excess you receive the price of the TV minus £50.

If you already have contents insurance on your previous home, make sure the cover is transferred from your previous home to your new one on the day you move in.