What insurance do you need when buying a house?

Your mortgage is likely to be the biggest expense you will face in life, but what happens if you can no longer pay it? Many people ask themselves the question: what insurance do you need for a mortgage? Here are the types of insurance that can help you pay your mortgage.
Share this guide
Couple clinking champagne glasses sitting by fireplace

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

What insurance do you need when buying a house in the UK?

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.

What insurance do I need for a mortgage?

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.

Insurance required for mortgage

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. 

Buildings insurance required for mortgage

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.

Here is more information about buildings insurance

Life insurance and your mortgage 

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

Here is more information about life insurance

Critical illness cover and your mortgage

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.

Here is more information about critical illness cover

Income protection for mortgage repayments

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.

What is MPPI?

When you take out a mortgage, your lender may offer you a mortgage payment protection insurance policy, also known as MPPI.

This is the same as a standard income protection policy, so instead of accepting the policy your lender offers you, compare as many policies as possible to get the best price.

Here is more information about income protection

If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.

Read More

This is an image of a house in need of repair

What does building insurance cover?

Protecting your home with buildings insurance can save you a great deal of money if something goes wrong. If you’re wondering precisely what buildings insurance covers, this guide has the answers.

Read More

Top 10 Life Insurance Companies - Best UK Life Cover

Life insurance can help you plan for the future and keep your loved ones financially secure. Compare these companies to find the right level of cover for the people you care about the most.

Read More