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How to take out insurance when buying a house

by | Dec 9, 2022

Home $ How to buy a property $ How to decide on the right home insurance $ How to take out insurance when buying a house

Buying a house can be a big decision no matter what stage of the buyer journey you are at. Experienced landlords and first time buyers all encounter similar problems and anxieties around buying a home. As a result, one of the ways to protect yourself from these worries is to take out the right type of insurance coverage.

However, if you are a landlord, we recommend following our article on what insurance you need for landlords instead.

This can provide the financial protection you need against the losses and risks that could happen throughout the process of buying the property and after you own it.

This article goes through the different types of insurance available for homebuyers so hopefully by the end of it you will be able to decide on the best types for your buying needs.

A landlord taking out insurance when buying a house

What is the use for homebuyer protection insurance?

You may need to use home buyers protection insurance because it is a type of policy that is specifically designed to protect them from the day to day risks associated with owning a home. Even if you are buying a second home, it may still be worth it as things can be unpredictable as a homeowner, even if you know what you’re doing. The following reasons may make it seem worth it for some buyers.

Protect from financial loss

When buying a property, there is always the chance that the owner does not disclose all of the important information about the property and it is not until after ownership that you realise there are defects you cannot afford to repair. For example, if there is subsidence in the property, this can be a major reason for additional renovation to have to be carried out.

In cases like this, homebuyer insurance can be claimed as there is often a period where any mandatory repairs after the purchase of a home are covered. This kind of insurance may not be necessary for new builds properties because there is often a warranty put in place when you first buy a home to cover any damages anyway.

This means, for second hand homes and those in particular that may appear older, taking out home buyer insurance for any potential property damages in the future that you did not expect would be a wise idea.

Protect yourself in the buying process

Often, there are fees associated with buying a property before you actually take ownership of it. This can include the fees to take out a mortgage, fees to terminate a mortgage early if you find you cannot apply it to a house straight away, solicitor fees, legal fees and estate agency fees.

Sometimes, a deal may not go through for whatever reason. Sometimes a buyer could make a last minute decision to go with another buyer even though they have verbally agreed to accept your offer in an immoral process known as gazumping.

As a result, homebuyer insurance can be put in place so that these fees can be absorbed by insurance if there is a sale that doesn’t compete.

If you want to further insure yourself from potential legal issues in a property, you should also consider indemnity insurance. Especially if you know that a landlord has done work on the property you are buying without planning permission or legal certificates. This insures you in the event there is a legal case concerning these issues.

The exact way in which this will work is dependent on the insurance policy and the amount you are paying but you can seek out insurance policies that are like this if you think the buying process you are in is particularly risky like if you are buying through auction as an example.

Avoid mortgage fees

Sometimes, due to the closing of the property being delayed, this can result in the mortgage offer you originally applied for expiring. As a result, you may need to pay additional fees to apply again. In addition, due to this process, there could be additional solicitor fees associated with a mortgage offer expiring.

This is because mortgage offers tend to involve hard credit checks so doing too many of these in a short period of time may ruin your credit score which is not ideal if you are looking to buy more properties in the future or keep the eligibility for a mortgage the same.

Image showing how insurance when buying a house helps mortgage payments

What does homebuyer protection insurance not cover?

Homebuyer insurance covers all of the risks involved with the purchase of a home. Having said this, most policies do not protect against everything and here are some of the things that the insurance will not safeguard against:

1. Pre-existing damages

Unfortunately, pre-existing damages that were obviously there before the property was purchased cannot be claimed. It is a different story if the previous owner of the property lied about the structure of the property or they came up with a lie in order for the buyer to find the property appealing. However, if there is anything obvious this will be hard to have an insurance claim accepted for.

This also includes anything the owner should have checked out during the general due diligence one must do when purchasing a home. For example, if there was a broken toilet in the property and the new owner after the purchase of the home claimed they did not know, this will likely be dismissed as something they should have investigated beforehand.

This is why it’s important to always visit the property you’re buying to know if you’d need homebuyer insurance when buying a house and to ask the landlord who is selling the property and the estate agent the right questions. To make this process simpler. Check out our property viewing checklist and make sure you’re asking the right questions when buying a house.

2. Post-purchase wear and tear

As well as the general wear and tear of a property, insurance when buying a house also will not protect against any damage that was caused due to neglect. If the landlord didn’t take care of the piping in the property for example and the pipes burst within the first few days of the landlord moving in, this would be difficult to get covered under homebuyer insurance.

Something like this may be better covered by general home insurance or more specifically building insurance which will protect against the structural integrity of the property.

What other types of insurance is needed?

Other than general homebuyer insurance, there are other types of insurance when buying a house that are more specific and may have specific benefits for individual types of buyers.

Building insurance

Building insurance is a type of insurance policy that provides financial protection for the physical structure of a building, such as a home or commercial property. Building insurance is important because if the property is physically damaged, this can be a big issue. So it is a way for a property owner to protect against the worst that could happen to a property without having to pay for the entire content cover.

Therefore, the insurance covers damages or losses to the physical structure of the building, as well as any permanent fixtures or fittings, such as plumbing, wiring, or built-in appliances. Having said this, the specific coverage provided by a building insurance policy will depend on the terms and conditions of the policy, as well as the specific risks and exposures of the property.

Building insurance when buying a house

Contents insurance

Contents insurance, as opposed to building insurance, is a type of insurance policy that provides financial protection for the personal belongings and possessions that are located inside the building. 

Someone might take out contents insurance rather than building insurance if they are more concerned about protecting their personal belongings and possessions than the physical structure of the building itself. It is also possible to take out content insurance for specific appliances that are particularly expensive and likely to break down like landlord boiler cover for example.

For example, this type of insurance would be popular to those who are in a leasehold agreement where they don’t necessarily own the land that the property is built on but they own the house that is built on the land for a decided period of time. If the leasehold is coming up to an end, they would have little investment in the structure of the property, despite them technically owning it.

Mortgage payment protection insurance

Mortgage payment protection insurance is a type of insurance policy that provides financial protection for homeowners who are unable to make their mortgage payments due to certain covered events, such as illness, injury, or unemployment.

This is important if the landlord wants to make sure their credit score is protected by making consistent mortgage payments and will also provide them with a peace of mind considering losing a home due to missed mortgage payments can be a devastating experience.

Life insurance

Life insurance is a type of insurance policy that provides financial protection for the policyholder’s loved ones in the event of the policyholder’s death. 

While life insurance is not typically required when buying a house, it can be used to provide financial support for their loved ones if they were to pass away before the mortgage is paid off. This allows the deceased’s family to retain ownership of the property.

Rent guarantee insurance

Rent guarantee insurance is a type of insurance policy that provides financial protection for landlords against the risk of non-payment of rent. The policy typically covers the landlord’s lost rental income as well as any legal expenses that may be incurred in evicting the tenant or pursuing unpaid rent. 

Rent guarantee insurance when buying a house

What other insurance costs are there when you buy a home?

The following types of insurance will be talked about in terms of if they are needed for the mortgage application and to what extent.

Do you need building insurance for a mortgage?

Most of the time, when to get building insurance will be either for a residential property or an investment like with a buy to let mortgage for example. Some mortgage companies may include the building insurance as part of the mortgage repayments as they have a vested interest in making sure the property’s structure remains intact too.

If the buyer loses money due to structural damage, this is bad news for the lender as they may miss out on mortgage repayments. Hence, the lender will often do a rebuild cost assessment beforehand.

How does life insurance impact a mortgage?

Life insurance is rarely a requirement for a mortgage. However, there are so many lenders it may be the case that some require it or will at least consider it a positive as part of your mortgage application.

Critical illness cover for your mortgage when buying a house

If a lender requires you to take out critical illness cover, there is a chance that they may provide this cover too. However, you may be able to get creative and take out a type of cover that they approve from a different company for a cheaper price.

By going to a provider that is more specialist in critical illness cover, they may offer it for a cheaper price.

What is mortgage payment protection insurance?

It is more likely that you will have to take out mortgage payment protection insurance if you are in a residential mortgage because your ability to pay back the mortgage depends solely on your ability to produce an earned income from a job.

As a result, it may be required by your lender but it may also be a wise idea anyway. Especially if you know you don’t have a lot of savings, you are stretching yourself on the mortgage payment anyway and you are not married or in a civil partnership to pay the mortgage.

In summary

When looking at insurance when buying a house, it’s important to consider the different types of insurance that are available to protect your investment and provide financial security. Building insurance provides protection for the physical structure of the property, while contents insurance covers your personal belongings and possessions. 

Also, it may be the case that you need to take out any of these other types of insurance such as rent guarantee insurance or life insurance if you want to gain approval to buy the house in the first place. 

By understanding the different types of insurance that are available and choosing the right coverage for your needs, you can protect your home and your loved ones from a variety of risks and losses.

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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.