We, at FTBUK, have just received the annual renewal notice for our Home Insurance and it has served as a reminder of one of the ongoing costs of home ownership that's worth making clearer for you before embarking on your home owning journey.
Insurance, often viewed as an expense without immediate returns, proves its worth when you need to make a claim. While it's natural to be reluctant about paying for something you might not use, the security it provides in unforeseen circumstances is invaluable. And since none of us have a crystal ball and can't tell into the future, its god practice to have some financial protection against the unforeseeable.
Now, it's vital to recognise that there are various types of insurance, each catering to specific needs. There's no one-size-fits-all approach, as your financial circumstances and requirements are unique to you. Moreover, it's important to remember that insurance is an ongoing post-home purchase cost, much like council tax, utilities, and your mortgage payments. Having a clear understanding of your monthly expenses after buying your home is essential for managing your budget effectively. And you should be familiar with these upfront because will be asked to consider these insurance types at the same time you apply for your mortgage, if not before.
Let's delve first into the types of insurance which are property specific:
- Building Insurance: This is a non-negotiable condition of your mortgage agreement – a must-have. It safeguards your property in the event of damage or destruction, ensuring that there's financial cover to rebuild your home. For leasehold flats, the responsibility often falls on the freeholder, while for houses, it's your job. You will need to renew it annually, especially while you still have a mortgage as its an ongoing requirement for your mortgage agreement. And it must be in place from the date that you exchange contracts, you read that correctly, from exchange, not completion. So make sure you are ready for that.
- Content Cover: While not mandatory, it's still a clever consideration, especially if you own a substantial number of items or possess precious valuables. It shields your personal belongings, including clothes, electronics, jewellery, as well as furniture, curtains, carpets, and flooring. Essentially, everything within the walls of your home is covered by contents insurance and some listed items that you keep on your person, like a watch or diamond rings and necklaces. It covers theft, as well as damage from events like fire, water, or accidental breakage. Accurately estimating the cumulative value of your belongings is crucial, particularly if you ever have to replace everything at once.
Moving beyond property-related insurances, when securing a mortgage, you'll also be reminded to consider personal insurances. While not compulsory, these are definitely worth contemplating:
- Life Insurance: This provides a lump sum pay out in the unfortunate event of your passing. It can be used to settle your mortgage, offering financial security for your loved ones. Premiums tend to be significantly cheaper when you secure a policy at a younger age, making it a proactive move for future security.
- Critical Illness Insurance: Also a lump sum pay out if you're diagnosed with a serious illness, it provides financial support during an extended and serious illness.
- Income Protection Insurance: This offers a regular income if you're unable to work due to illness or injury, guaranteeing you can continue to meet your mortgage payments and other essential expenses. This covers more types of illnesses than Critical Illness Insurance.
While this post doesn't delve deeply into personal insurance covers, it doesn't diminish their importance. They're integral to broader considerations of personal financial planning whether you are in the midst of buying a home or not. The relevance of each type of cover depends on your individual circumstances and if you have a family to support.
So in a nutshell, the only mandatory cover needed is Building Insurance, but that doesn't mean you should disregard everything else. he more things you collect over time, the more you should consider contents cover. How much it could affect your loved ones, if you were to get sick or worse, should be a big factor into which types of cover and what cover value you choose. Setting yourself up for home ownership is also about setting yourself up with better financial planning.
Empowering you with knowledge so that you can make the best financial decisions for you.