Home and Mortgage Insurance Guide
UK Home and Mortgage Insurance Guide - We are an Independent UK based expert providing information on Home and Mortgage Insurance services.
When the time comes to take out a mortgage, you'll find you need various types of insurance. For example: to cover your monthly payments in case you are unable to work and home insurance in the event of any incidents...
There are many types and variations of insurance and mortgage cover you should make yourself aware of if you own, or when purchasing or moving house. We have put together a guide that covers the majority of points you will, or should know...
Household Insurance - Buildings and Contents Insurance
There are two main types of home insurance, one being those policies which cover the actual building you live in and the other being those policies that cover the contents of your property. A typical homeowners insurance policy will provide cover for the "bricks and mortar" - meaning the actual physical structure of a property, as well as the homeowners contents and possessions. This is what is commonly known as Buildings and contents insurance.
Buildings and contents insurance covers the cost of any damages or repairs required to the permanent structures in the home as well as the land you own. This can include not only the outside structure of the house itself but may also include internal permanent fixtures such as sinks, toilets, baths and kitchens or boundary features such as walls or fences that surround the property. This type of insurance policy may also cover outbuildings such as garages or garden sheds, but we always recommend that you check this with the policy provider to make sure you get the most appropriate coverage required.
Your mortgage lender will probably try to get you to take their own policy, as until the mortgage is paid off in full your house is considered their investment too. However it is worth remembering that you are not obliged to buy from them so consider shopping around and request quotes from at least three alternative sources to find the most competitive quote for your requirements.
What's covered?
A typical Buildings and Contents Insurance policy will cover you for set list of eventualities, including damage from natural disasters such as;
- Fire
- Floods
- Earthquakes
- High winds/Storms
as well as covering you in the event of non natural disasters such as;
- Impact from road vehicles
- Falling objects - trees/branches
- Vandalism
Some of the more comprehensive policies will also cover you in the event of pipes freezing/bursting and subsidence (although previous cases of subsidence on the property must be declared before hand) as should any previous flood damage, for instance if your property is situated on a flood plain and you do not inform your policy provider they could void your claim. We strongly recommend you to check with your policy provider for exactly what eventualities are covered, and make sure that you are not in a high risk area for any uncovered situation before purchasing a policy, i.e. a flood plain. Some insurers may allow you to take out extra cover in these situations; this may be worthwhile in the long run so make sure to check out all of your options.
Mortgage Payment Protection Insurance
A mortgage insurance policy will protect your property and the repayments on your mortgage in the event of an accident, illness, injury or unemployment reduces your income and threatens your ability to pay your mortgage payments. We strongly recommend taking out a mortgage protection policy when buying a property, one reason being that anyone who has mortgaged or re-mortgaged since 1st October 1995 are now only eligible for state assistance nine months after becoming unemployed or ill or disabled. Thereafter you will receive payment at a standard rate set by the Department of Social Security, if your actual mortgage interest is higher than this pre-set rate then you will be required to find the difference.
This type of policy is designed to be used in conjunction with a repayment mortgage where the debt is reducing throughout the term of the mortgage; the monthly premium is set at the beginning and will remain constant throughout. Most of these policies will pay for the first one or two years of unemployment, sickness or injury and they will normally allow you to cover other associated costs such as any outstanding endowment policies or life assurance premiums. We recommend that you study ter terms and conditions of any policy you take out in detail so that you understand exactly what is covered.
Life Insurance
Coming to terms with the loss of a loved one is never easy, add to that the financial burden the death of a loved one can bring to the grief can make coping increasingly difficult. It can help to support your family after you die.
As with all insurance, there are various types of life insurance. However the principle for each variation is the same life insurance will pay off your mortgage if you die. In the event of your death your dependents will receive a sum of money in compensation as replacement for your earning power. It is a wise decision to consider paying for life insurance if you have children or others who are reliant on your earnings. Life insurance can also be a means of saving. The long-term nature of life insurance allows you to make clear plans for long-term saving. Life insurance companies have long and wide experience of successful investment as well as providing protection in the event of your early death.
The main reasons to take out life insurance include:
- Mortgage repayments
- Replacing the primary earner’s salary
- Replacing childcare
- Education expenses
A life insurance plan is essentially a gamble. Neither you nor your insurer wants you to die while you're covered, but your premiums are priced to reflect the risk of this happening. Of course, if you outlive your life insurance policy you win and the insurer looses and you have some nice savings to enjoy. either way you can live, or die, with peace of mind knowing your debt, familly and friend are taken care of.
Although a payout from a life insurance policy is tax free, it could form part of your estate and be liable to Inheritance Tax , which could take up to 40% of your payment out of the hands of who it is meant for. The simple way to avoid this tax is to place your policy 'in trust', essentially enabling any payout to be made directly to your dependants and in the process avoiding the taxman (its always nice to legally dodge the taxman even after death!). Certain kinds of trusts allow you to control what happens to your payout after death and speeds up payment. However, they cannot be used for life insurance policies that are assigned to your mortgage lender. Your insurer or broker will often set up the trust for you at no extra cost.
Mortgage Protection Decreasing Term Assurance
Sometimes considered to be the cheaper alternative to life insurance, it works by recognising that the main purpose of insuring your life is to pay off your mortgage. Because what you owe decreases with time (as your mortgage does) so does the amount of cover provided and so does the premium you have to pay every month. Hence the term "decreasing".
Permanent Health Insurance
Permanent Health Insurance, sometimes known as permanent disability insurance, helps you to maintain a standard of living following an accident or illness which prevents you from earning an income. Permanent Health Insurance is designed to provide cover against long term or permanent disablement or sickness. These policies are designed, not only to protect the mortgage payment but also to replace your income. The policy is payable until recovery or until a chosen date which ever is earlier. It is subject to a deferred period which should take account of any benefits provided by the employer. The benefit from a permanent health insurance policy is paid tax-free. If you take a lower paid job after a period of illness, you may only be entitled to a portion of your Income Protection Benefit as the amount received would be based on the ratio of your drop in income to your original income. Private health care rehabilitation and hospitalisation benefits are sometimes added as extras, but the small print of your income protection insurance policy needs reading in every case.
Critical Illness Insurance
Critical illness cover pays out a lump sum if you either die or are diagnosed with a critical illness that meets a specific list of defined illnesses. No one likes to think about the possibility of suffering a serious critical illness but if it were to happen to you, the consequences would be devastating for the financial security for you, your family and their futures. Critical Illness insurance companies design their cover to provide a lump sum, income or both, to bear the costs of a chronic or permanent health change due to illness or accident. Unlike Life Insurance, Critical Illness Plans pay out whilst you are alive. Costs of nursing care, stair lifts, widening doorways, ground floor bedroom conversion costs etc. can all be covered.
Insurance tips
- Shop around
- Know your policy - read the fine print
- Make sure your policy really does cover you
- Only buy the cover you actually need