INSURANCES

 There are four types of insurance you should consider when taking out a mortgage:

• Buildings insurance: To cover the rebuild costs if something happens to your home.
• Life insurance: To cover the cost of paying off your mortgage, if you die before it is paid off.
• Critical illness cover: To help cover the cost of paying off your mortgage if you get diagnosed with a life-changing condition.
• Income protection: To help cover your mortgage payments each month if you are unable to work due to an accident, sickness or redundancy.

 There is no legal requirement to take out insurance when you get a mortgage, but you will still need to get basic insurance before you move into your new property. 

Although not required by law, your lender will want you to have buildings insurance  in place - remember that they have a stake in the property until you have paid off the mortgage - so buildings insurance protects their asset.

Other types of insurance are for your peace of mind, which in some cases may be priceless. 

This type of insurance is usually compulsory if you have a mortgage, and could save you a fortune if something damages your home, like a fire or flood.

Without building insurance, you would need to foot the bill to rebuild your home, while continuing to pay your mortgage at the same time.

 A life insurance policy could pay off your mortgage if you die during the term of the policy. There are two types you could consider:

• Level term life insurance: This would pay out an amount chosen by you, if you die during the term of the policy.
• Decreasing term life insurance: This costs less than a level term policy because the payout reduces over time. You could set up this type of policy to reduce its payout at the same rate as your mortgage balance each month.
• You can also take out a whole of life life insurance policy that pays out even after the mortgage has finished. This type of insurance tends to be classed as an investment and is more expensive than other types of life insurance

This type of insurance pays out a lump sum if you get diagnosed with a serious condition, like cancer or if you suffer a stroke.

Serious conditions that you live through could stop you from working and earning money, putting your home at risk of repossession, but they are excluded from most life insurance policies. 

Each policy has a list of conditions it covers, and a list of exclusions, so check before you buy.

There are three types of critical illness cover:

• Increasing cover: The payout amount and premiums rise with the rate of inflation each year.
• Level cover: The payout and premiums stay the same throughout the policy.
• Decreasing cover: Premiums are usually lower compared to level cover, but the payout reduces each month. You can use this to follow your mortgage as it is repaid.

Some insurers let you add critical illness cover to a life insurance policy when you apply.

You will not always get a better deal if you buy the two together, so shop around for both to find the best cover for the cheapest price.

If you become ill, have an accident or even become redundant, an income protection policy could pay you an income until you can work again.

These policies can cover you up to a set percentage of your income, e.g. 65%, or up to a set monthly amount, e.g. £2,000.

You could find a policy that lasts for just a year, or up to your retirement date. The longer the policy, the more expensive it is.