We all like feeling secure. Insurance is protection against the things that can go wrong. Yes, it costs a bit of money. But insurance gives us peace of mind that if things go awry, we will be OK financially.
But do you need insurance when purchasing a house? And if so, which insurance do you need, and when and how do you get it?
Here, we break down these questions, to guide you.
Do you need insurance?
Most lenders will require you to have home insurance before you exchange contracts on a new house. If insurance is required, a copy of your policy will need to be sent to the lender before exchanging contracts.
Which insurance do you need when buying a house?
There are lots of different forms of insurance. Let’s break this down.
- Building or home insurance: Home insurance or building insurance will protect you against damage to your property caused by uncontrollable elements such as fire or flood. Building insurance can be total replacement cover, which includes all the costs to rebuild your home as it was. Or building insurance can be sum insured, which means you are covered for a specific amount.
- Contents insurance: If you are renting, you may already have contents insurance. Contents insurance protects you against theft, or accidental damage to your belongings. You can get a combined home and contents insurance, which will ensure both the building and its contents are protected.
- Lender’s Mortgage Insurance (LMI): Lender’s mortgage insurance is insurance taken out by the lender (not the purchaser) to protect them, should you default on your repayments. The purchaser covers LMI on the lender’s behalf, which adds a cost to the loan repayments. (If the insurance premium is added to your total loan). But LMI may only be applicable if you are borrowing more than 80 percent of the house value.
- Landlord insurance: A landlord insurance is an option if you are renting out your house or purchasing an investment property ofr future rental. Landlord’s insurance is a good idea if you are purchasing your property as an investor. Landlord’s insurance protects you against tenant theft, deliberate damage caused by tenants and if tenants default on rent payments.
- Mortgage protection insurance: Mortgage protection insurance is a form of personal insurance mortgage holders can take out to ensure you will not default on your loan, should your financial circumstances change. The monthly cost of mortgage repayments will be covered should you or your partner become seriously ill, die or lose a job.
When do you need to get insurance?
It’s wise to get home insurance before you exchange contracts on a new home, so there is no gap between the previous vendor’s insurance and your own. Get contents insurance sorted before moving in, to protect against any accidental loss or damage during the move.