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The essential insurances for first-time buyers

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Read on to find out what insurance first-time buyers really need and which you may be able to manage without. 

Couple moving house

Buying your first home is an expensive business. Not only do you need to save a large deposit, possibly pay Stamp Duty, plus furnish your new abode, there’s a long list of extra costs and charges that come with the territory. 

Such charges take the form of insurance policies and there are quite a number to choose from. The problem is they may all seem pretty important, but what if your finances force you to be selective when it comes to insurance cover?

Buildings Insurance

This covers the cost of rebuilding the structure and fittings of your property if it was destroyed by fire, flood, subsidence or other dangers. Your mortgage lender will insist you take it out to protect its asset (your home) – so it’s compulsory.

One exception is if you buy a leasehold property, in which case the freeholder is responsible for buildings insurance, and you probably pay it indirectly via your ground rent.

If you’re lucky enough to be able to buy your first property in cash there is no lender to insist that you take buildings cover, but it is still highly recommended you do.

Contents Cover

You might think you have nothing worth pinching, but replacing stolen belongings could cost tens of thousands of pounds. More importantly, contents cover protects against a lot more than theft – if your property was flooded and your furniture ruined for example, your insurer would replace it.

Accidental damage cover is invaluable if you drop the iron on your new carpet, and personal possessions cover protects items like cameras outside the home too.

Can you afford not to have contents insurance?

Life Insurance

If you have children, a partner or other dependants who would be financially impacted by your death, life insurance is absolutely essential.

The cheapest type is decreasing term assurance where the amount insured reduces as you repay your mortgage, so it will always cover the amount you owe your lender.

If nobody would be financially disadvantaged in the event of your death, you might decide to forgo this cover. Indeed, many single homeowners prefer to spend the money on Critical Illness Cover instead.  

Critical Illness Cover

Critical Illness Cover pays out a one-off, tax-free lump sum if you are diagnosed with one of a list of serious diseases, including cancer, heart disease and multiple sclerosis.

This isn’t an essential insurance but, if you can afford it, Critical Illness Cover offers invaluable protection and takes away the financial pressure that comes with being diagnosed with a life-threatening illness.

Mortgage Payment Protection Insurance

Mortgage Payment Protection Insurance (MPPI) covers your monthly mortgage repayments if you are unable to work because of unemployment, sickness or an accident. It can be a useful safety net for many borrowers who would not be able to cover their repayments if they couldn’t work.

However, if you have good sick pay arrangements at work you may not need the sickness or accident elements, and it could be cheaper to take out an unemployment-only protection policy.

Also, MPPI only pays out for 12 (or 24) months so if you have a large savings pot you may decide you could cover your mortgage yourself.

Permanent Health Insurance

Permanent Health Insurance (PHI) pays out an agreed monthly sum (such as 65% of your earnings) if you cannot work because of ill-health or an accident.

It’s not vital, but is a good alternative to MPPI as it pays out until retirement rather than for just 12 months. Plus, depending on your circumstances, it isn’t necessarily more expensive.

Private Medical Insurance

For some first-time buyers Private Medical Insurance is a ‘nice to have’, not a ‘must have’, but for others it can be vital.

The self-employed for example want to know that if they get ill, they will be treated without delay and will be back in work as quickly as possible. PMI helps minimise the length of time you are not earning.

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