Insurance

Household buildings & contents insurance

It is essential to protect your new home and also all your possessions. Household insurance has two parts - buildings insurance and contents insurance. They can be bought separately, though some insurance companies offer a single policy covering both which can save you money.

Buildings Insurance provides cover for the property itself, including basic essentials such as kitchen and bathroom fittings (sink, toilet, bath etc) and running water. It also provides cover for events such as fire, flood or even subsidence.

When buying a home, make sure that you have arranged for insurance cover on your new home to start on the day you exchange contracts. If you are not a first-time buyer, arrange for the insurance on your previous property to continue right up until the day you exchange, in case the deal falls through.

If your home is part of a larger building, such as a block of flats, your buildings insurance may be bought in a joint policy by everyone in the building so you will only need contents insurance, or if it is a leasehold then the freeholder may have insurance - check up on these.

With property values fluctuating so much, it is not always clear how much your property should be insured for. It is not the market value, but the amount it would cost to rebuild it that gives a more stable value for an insurance policy - including the costs of clearing rubble and architects' and surveyors' fees, as well as building materials and labour. Check your survey or valuation details for the rebuilding costs, which will be listed under the term 'reinstatement'. The Association for British Insurers (ABI) also has a leaflet on how to work out reinstatement costs, or you can check with your surveyor.

Contents Insurance insures all your possessions inside your home. You may be surprised how much your possessions are worth. 'Contents' refers to everything from furniture and carpets to jewellery, cameras and clothes. It's up to you exactly what your insurance policy covers and the price depends on how much it covers. The policy will state an overall limit on the amount you can claim, called the sum assured, and there is also a minimum sum assured.

To work out how much cover you need, make a list of everything in each room and how much it is worth or would cost to replace. Remember to include furnishings, carpets and other fittings, and clothes and food, as well as more obvious items like TVs and jewellery. Insurance for items which you take outside your home such as bicycles, musical instruments, sports equipment and so on may also be included in your contents insurance. Often this is set up to a general limit, so if you need extra cover for more valuable items then you will need to ask for this limit to be increased. You can also ask for cover to be removed if you do not need it, so check what your policy includes - often standard policies include items like cash and cards left at home and frozen food up to a certain limit in case your freezer breaks down which you may feel are not worth paying for. You can reduce the cost of your insurance premium by agreeing to an excess on any claim, on both buildings and contents policies. This is where you pay the first part of any claim; for example, if your TV is stolen and you have agreed to a £100 excess you receive the price of the TV minus £100.

If you already have contents insurance on your previous home, make sure the cover is transferred from your previous home to your new one on the day you move in.

Life insurance

Life insurance is an important purchase to make. Most mortgage lenders will insist that borrowers take out life insurance, but if yours does not, don't treat this as a good excuse to avoid the extra expense. Life insurance may seem like an unnecessary additional cost, but it is worth considering seriously. The point of it is to provide enough protection to cover outstanding mortgage repayments should you die before you have finished paying it off. This is particularly crucial if you have a family or other dependants, as it would make sure they could keep a roof over their heads in the event of your death.

Those with endowment mortgages do not need to worry about life insurance as the policy incorporates life insurance. However, nowadays most borrowers do not have endowment option mortgages, and so have to purchase life insurance separately. It is not a complicated product to understand - if you die, it simply pays out a lump sum.

There are however a few things you should look out for:

Is terminal illness benefit included in the policy at no extra cost? This means that if you are diagnosed with a terminal illness then your policy will still pay out when you die, even though the insurer knows beforehand that you are ill.

Is waiver of premium provided for? This means that if you become involuntarily unemployed or too ill to work and you haven't got protection for unemployment or illness, your life policy premiums will still be paid even though you can't afford them.

Mortgage payment protection

This is insurance cover to protect against unemployment or illness.

Standards have been laid down for this type of cover by the Association of British Insurers and the Council of Mortgage Lenders. These stipulate that a policy should start paying out after no more than 60 days, so that at most you will have to find two months' worth of repayments yourself continue covering your repayments for at least 12 months after that period. They must assess each medical condition individually and not just refuse conditions such as backache and pregnancy complications automatically. They must also give at least 6 months' notice of any change in the cover, such as cost or nature of the cover and operate more consistent policies towards self-employed and contract workers. Self-employed workers should be covered for unemployment if they have informed the Inland Revenue that they have ceased trading involuntarily and have registered for the jobseeker's allowance. Contract workers should be able to claim if they have worked for the same employer for at least a year.

Make sure your policy covers as many circumstances as possible, and your particular work situation. Many policies do not insure part time or temporary work. Also check the exclusion clauses - for example, many insurers will not cover unemployment which is due to medical conditions which you had before taking out the policy, or due to pregnancy, stress or back pain. Unemployment which is voluntary, caused by misconduct or is seasonal are among other circumstances generally excluded.

As with household insurance, always shop around for your policy.