What insurance do first-time buyers need?

Key points

Mandatory buildings insurance

Buildings insurance is compulsory for homeowners to protect the structure of the property against damage or destruction, covering the reinstatement value (not necessarily the market value). For flat owners, buildings insurance may often be included in a factor fee, which is a shared cost that also covers other maintenance services for communal areas. Homeowners should check if their property is part of such an arrangement to avoid duplicate coverage.

Contents insurance

While not legally required, contents insurance is strongly recommended to safeguard personal possessions inside the property, including furniture, electronics, jewellery, and valuables. Additional coverage for items like laptops or golf clubs outside the home can be included for a higher premium, ensuring comprehensive protection against loss or theft.

Life insurance

Life insurance, particularly decreasing term assurance or mortgage protection insurance, is designed to ensure that the mortgage is fully repaid if the policyholder passes away. For couples, a joint policy can cover both partners, ensuring the surviving partner isn’t left with the financial burden of a mortgage. Single buyers may also consider it, especially if they wish to protect dependents or leave a financial legacy.

Critical illness cover

This policy pays out a lump sum upon diagnosis of serious illnesses, such as cancer, heart disease, or neurological conditions like motor neuron disease. Some policies offer enhanced coverage for up to 80 conditions, providing additional peace of mind. These funds can be used to pay off the mortgage, cover medical costs, or support living expenses during recovery.

Income protection

Designed to replace a portion of income (typically up to 75%) if the policyholder is unable to work due to illness or injury, income protection ensures that day-to-day expenses and mortgage payments can still be met. Policies should be tailored to align with the employer’s sick pay scheme, starting after the employer’s payments stop (e.g., six months of full pay). This prevents overlapping benefits and helps manage premiums effectively.

Tailoring and regularly reviewing policies

Insurance policies should be reviewed when salaries increase, job roles change (e.g., moving to a less risky profession), or major life events like moving to a new home occur. Modern policies often allow flexibility, such as increasing coverage when upsizing to a larger property or downsizing in later life.

Legal considerations for first-time buyers

Paul strongly recommends that buyers consult a solicitor to create a will, ensuring that their assets are distributed according to their wishes. Setting up a power of attorney is also advised to manage financial or health decisions in case of incapacity, although buyers should seek legal advice for these matters.

Budgeting for comprehensive protection

While the ideal scenario includes life insurance, critical illness cover, and income protection, first-time buyers should balance the level of coverage with their financial capacity. Prioritizing mandatory and highly recommended policies, like buildings insurance and life cover for mortgage repayment, is essential, with additional policies added as budgets allow.