First time buyers often ask what insurance they need in order to obtain a mortgage. Here at Wakefield Mortgage Services, we advise our clients on the different types of insurance (often referred to as ‘Protection’) available to them, and will make a recommendation based on their circumstances – usually around the same time as we submit the mortgage application.
Buildings Insurance
A type of insurance that covers the cost of repairing or rebuilding your home in the event of damage or destruction. This is the only insurance that you must have in order to obtain a mortgage. Lenders insist that you have this cover in place as it protects their investment in the property. Note that it only covers the physical structure of the home, not the contents inside.
Contents Insurance
This covers the cost of replacing or repairing your personal belongings if they are damaged or stolen, and can include additional extras such as accidental damage, or certain items (such as jewellery) taken away from the home. It’s important to ensure that the level of cover is sufficient to replace all of your belongings.
An important aspect of our job as advisers is a process referred to as ‘Preventing foreseeable harm’ – ensuring that you, our client, is protected should the worst happen. Whilst we will seek to understand your circumstances and budget constraints, we will ensure that you are aware of all types of protection available to you, and the risks of not having them in place. The reality is that, during your lifetime, you are likely to need at least one of the types of insurance listed below.
Life Insurance
Life insurance provides peace of mind. In the event of your death, your mortgage will be paid off and ensures that your family can remain in the home without the worry of mortgage repayments. There are several different types of life insurance products, each with their own pros and cons and costs.
Critical illness insurance
This type of insurance provides a lump sum payment if you’re diagnosed with a serious illness, the main 3 of which are cancer, heart disease and strokes. This payment can be used to pay off your mortgage while you focus on your recovery.
Income Protection
Insurance designed to protect your income should you be unable to work due to illness or injury. Income protection will provide a monthly income (usually a certain percentage of your normal income) to cover your mortgage payments and other expenses until you’re able to return to work.
It is worth noting that with these ‘Personal protection’ policies, your monthly premiums (payments) can be affected by factors such as your age, smoker status, and any existing health conditions. For this reason, it’s often a good idea to secure a policy at a younger age for the lifetime of your mortgage, as there are policies available that guarantee the monthly premiums for the entire term.
To summarise, whilst Buildings insurance is the only policy you must have from a lender’s perspective, it’s a good idea to consider your other options and ensure you are protected in case the worst should happen. Our advisers will be more than happy to discuss the details of the different types of insurance with you.