Home Buying Guide: Which Insurance Policy?

There is a huge amount of choice of deals in household insurance, so searching for a good one can be a bit daunting. If you already have household insurance on a previous home, this can be transferred when you move. If you do this, make sure you are getting the best deal for your new property which may come under a different premium and be worth more, or less, than the last one. Get a lot of quotes from different insurance companies. It is also worth looking into direct insurance companies, brokers and online services.

Top Tip: When looking into insurance deals, keep a record of what you tell each insurance dealer and the questions you ask them. This will make it easier to compare premiums.

Some mortgage lenders provide their own insurance deals, but it is not necessarily wise to buy your home insurance from your lender. Their insurance premiums are often extremely high compared to those sold by insurance companies, and they might throw the cost of the premium in with the cost of the mortgage which makes it very difficult to work out how much you are paying. If your mortgage lender is offering you the convenience of an insurance policy bought from them, look very carefully at how much it will cost you and compare it to insurance policies elsewhere.

The Association of British Insurers website contains a lot of information about buildings and contents insurance. They will also send out leaflets by post.

Protection in the Case of Unemployment or Illness

Mortgage Payment Protection Insurance (MPPI)

"Your home is at risk if you do not keep up the repayments on a mortgage or other loan secured on it"

This is a familiar phrase to home-buyers. You may think it will not apply to you, but what if you are unemployed for a period, or cannot work due to illness? The future is always unknown, and if the worst does happen you could suddenly face a crisis in paying your monthly mortgage repayments. It is a very wise precaution to insure against losing your home should such circumstances arise; every week, over 1,000 families have their homes repossessed.

In the past, the government provided enough help with mortgage repayments in the case of unemployment to save many people from losing their homes, but since 1995 the rules have changed. Now, borrowers who took out their mortgage after 1 October 1995 who are having repayment problems do not receive any help until 9 months after the beginning of the period of unemployment - enough time to fall dangerously behind with payments. It is extremely inadvisable to rely on the Social Security system. You should instead seriously consider taking out Mortgage Payment Protection Insurance (MPPI) to cover your mortage payments should you become unable to continue paying them.

Standards have been devised for MPPIs by the Association of British Insurers and the Council of Mortgage Lenders. These stipulate that a policy should:

start paying out after no more than 60 days, so that at most you will have to find two months' worth of repayments yourself
continue covering your repayments for at least 12 months after that period
assess each medical condition individually and not just refuse conditions such as backache and pregnancy complications automatically
give at least 6 months' notice of any change in the cover, such as cost or nature of the cover
operate more consistent policies towards self-employed and contract workers. Self-employed workers should be covered for unemployment if they have informed the Inland Revenue that they have ceased trading involuntarily and have registered for the jobseeker's allowance. Contract workers should be able to claim if they have worked for the same employer for at least a year.

Make sure your policy covers as many circumstances as possible, and your particular work situation. Many policies do not insure part-time or temporary work. Also check the exclusion clauses - for example, many insurers will not cover unemployment which is due to medical conditions which you had before taking out the policy, or due to pregnancy, stress or back pain. Unemployment which is voluntary, caused by misconduct or is seasonal are among other circumstances generally excluded.

As with household insurance, shop around for your MPPI. If your mortgage lender offers you a protection policy, make sure that you will not be paying far more than if you bought a policy elsewhere.