Follow the path to find protection for your home
Threats to your home can come take many forms: storms, subsidence, accidents, crime, sickness, the loss of a job. How can you protect yourself? This three-page special report explores the options
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Wednesday 05 June 1996
If you think choosing the "right" mortgage is hard work, it can be even harder to find your way through the insurance maze when buying a new home.
The range of products with the insurance label is often bewildering, and your route through the maze is not helped by the wide variety of names that different companies use to describe similar types of cover.
Buildings insurance is comparatively straightforward and if you are buying a freehold, it is compulsory. If you are buying a leasehold property, such as a flat, the lender will want details of the policy covering the entire block, which will be available from the freeholder or the managing agents.
Most lenders will now allow borrowers to take out the buildings insurance policy of their choice, so long as it provides acceptable wordings and levels of cover. An exception is with many of the low-rate fixed rate mortgages, where the fix is often subject to a tied insurance policy. In effect, the bank or building society is using the commission earned on the policy to subsidise the mortgage.
Buildings insurance is often sold as a package alongside contents insurance, but there are a number of variations in buildings cover itself. Abbey National, for example, offers both primary cover - for example rebuilding after fire or storm - and accidental damage cover, which would cover the cost of repairs if you put your foot through the ceiling while in the loft.
Bob Hornbuckle of the City chartered accountants Blackstone Franks, who specialises in arranging mortgages for accountants and other City professionals, suggests that buying buildings insurance from your mortgage provider may turn out to be a better bet than arranging your own.
"If you have a major claim for rebuilding work, possibly through subsidence or impact damage, you may do better with the weight of the lender behind you," he says. "If you get into a fight with the insurer, remember the policy is there to protect the lender's asset as well as your home."
Another form of insurance that new borrowers may encounter is known as mortgage indemnity guarantee (MIG) or high loan-to-value cover. It is normally compulsory for loans of more than 75 per cent of valuation, reflecting, say lenders, the greater risks involved in such loans.
MIG is taken out by the lender but paid for by the borrower - and comes in to play when a property is repossessed or abandoned. If the subsequent sale does not cover the loan outstanding, then the lender can claim under the guarantee. That does not let you off the hook; it simply means that you will be chased by the insurer, rather than the lender, for any shortfall.
Premiums vary, but for a 90 per cent mortgage on a property valued at pounds 60,000, expect to pay a single premium of around pounds 600. But you do not necessarily have to pay up in advance; in most cases the amount of the MIG is simply added to your loan.
If you have a repayment mortgage, you will normally be expected to arrange life assurance to clear the debt if you die during the term of the mortgage, and again this may be packaged with your loan.
Life assurance is not automatically top of the list, points out Stephen Quinn, a financial adviser. "If you are a single person with no dependants, life cover is a waste of money. The only other people with an interest in your home are the lenders, and they will claim it when you die."
Mortgage and payment protection can be divided into two categories: accident, sickness and unemployment (ASU) cover - the commonest form of mortgage protection - and cover for critical illness or long-term disability. While an ASU policy will normally last for 12 months or two years, critical illness insurance, known as "dread disease" cover, is intended for long- term illness which prevents you working. Although ASU cover is heavily promoted by building societies, it is not compulsory.
"Most people think of ASU protection as the most important, and for many people of course it is, but here again you need to look at your own circumstances. It may be that you should think about critical illness cover first," Mr Quinn says.
Both of these types of policy are designed to cover your outgoings. The other form of protection, permanent health insurance, provides an income if you are unable to work through sickness. "Obviously in an ideal world, people would buy into all four forms of protection, and we always try to explain them to people. It's then a case of deciding what you need, and what you can afford."
Mr Quinn is a director of Affiliated Financial Services - part of the Teachers Assurance group, which naturally means that he has large numbers of teachers on his client list.
"When we talk to teachers they are much more interested in the critical illness cover," he says. "They take the view that risk of redundancy is comparatively low - compared with most private sector jobs - and their terms and conditions include sick pay. But almost all of them know of a colleague who has been forced to give up work through serious ill-health.
"Whether you go through an adviser or do it yourself, take the time to work out what you really need, and then try to match it," says Mr Quinn.
MORTGAGE PROTECTION POLICIES
What happens to your home if you are suddently out of a job and without an income?
Mike and Diana Wilson were married at the end of August, and moved into their new home during early October, with a mortgage from a high-street banks. In the New Year, there was a bombshell: they both lost their jobs. A few hours after learning the bad news, Mike realised that he had forgotten to take out a mortgage protection policy.
"I had the application form in my bag and just did nothing about it," he confessed. "It's the old story. After all the running around to sort out the mortgage and the solicitors and the rest, it just got forgotten about."
The collapse cost Mike's bonus and commission - about pounds 15,000 - and neither of them qualified for redundancy pay. Diana quickly found work as a temp, while Mike began hunting for a job. But there were no immediate offers, and for the next two months it was a case of eking out Diana's earnings.
With their overdraft up to its limit, they put the house on the market, but the estate agents warned that they would be lucky to get the price they had paid just six months before.
"Basically we were hoping to find a buyer before the bank started talking about repossession," Mike said. "In the meantime I went to see the social security people." But with Diana in regular work, they failed to qualify for state help with mortgage interest payments. On 1 October - a few days before Mike and Diana moved in - stringent new rules on assistance with mortgage interest were introduced. The aim was to force most people to buy their own mortgage protection. In response to the new rules, both lenders and insurance companies have moved to develop their own protection plans. However, as Mike and Diana discovered, lenders may offer mortgage protection, but they do not insist on it.
Luckily, Mike found a new job a few days before the bank was due to obtain a repossession order. When pay day arrived, the first item on the shopping list, not surprisingly, was a mortgage protection policy.
"It seems crazy to me," he said. "The bank insisted that we had buildings insurance, in case the house burned down, but didn't insist that we had a policy to protect our repayments."
Mortgage protection, commonly known as ASU cover, provides cover for accident, sickness and unemployment. Monthly premiums are based on the amount of cover required and range from under pounds 4 a month to about pounds 8 per pounds 100 of monthly repayments. If you can, it is probably wise to buy enough cover to meet other living costs as well. There are various options.
Britannia, Britain's sixth-largest building society, gives new borrowers their first year's unemployment protection free. Gerald Gregory, head of lending, said: "It's obviously a significant cost to us, but we think it is worthwhile for two reasons. First, it makes sure that borrowers can continue to make payments if they do lose their jobs; and second, because it helps to keep our balance sheet clean by reducing bad debts."
At the same time as its free unemployment cover is offered, borrowers can also sign up for accident and sickness protection on competitive terms, and similar rates are on offer to existing borrowers alongside paid-for unemployment cover. Many lenders will include cover for other monthly outgoings, for example fuel bills and council tax, but there are limits.
Not all mortgage protection policies are sold by lenders. General Accident's Protect Direct policy, launched last year, is now the market leader among "standalone" mortgage protection policies.
A key feature of this policy is its flexibility. Borrowers can decide on the level of protection, the waiting time before payment starts, and whether they want the payments backdated to the start of their sickness or unemployment. Premiums are calculated individually, based on factors such as age, location, occupation and employment, as well as the level of cover.
Morven Laing, product development manager, says that there are such wide variations in personal circumstances that a "one size fits all" approach would never be satisfactory. "We think it is much fairer to consider the level of risk," she says. "It also means that we can give people a wider range of options that they can afford." Falling trees and rising damp ...TEXT: BUILDINGS INSURANCE
Competition for buildings insurance has deepened since the Office of Fair Trading, the competition watchdog, cast its beady eye over mortgage lending a few years ago. Lenders are allowed to tie in buildings insurance with discount or fixed rate mortgage deals, just as travel agents tie in cheap flight and holiday offers with travel insurance.
They must offer an alternative mortgage deal if the borrower does not want their insurance; but they are allowed to "vet" any buildings policy other than their own to make sure it is adequate both in terms of what it covers and the sum assured. They can charge an "administrative fee" for this service, generally about pounds 25.
Owners of leasehold flats, however, are tied in to the ground landlord's buildings policy. They should make sure it is approved by their lender and solicitor before purchase.
David Holden, general secretary of the Retirement Insurance Advisory Service, advises homeowners to "shop around" for buildings insurance. "But you must not be influenced by price alone," he says. In particular, you must make sure you have adequate cover in terms of the sum insured. If you have only insured for 80 per cent of rebuilding cost, then the insurer is entitled to pay only 80 per cent of the claim.
"You should also look at excesses, the amount the policyholder has to meet towards each claim. These can be high where subsidence claims are concerned. The best policies require a pounds 500 excess. But some ask for pounds 2,000 and others a proportion of the claim."
Buildings insurance covers the fabric of the building, usually defined as what cannot be removed by the occupier on moving house. It includes gas boilers, radiators, fitted kitchens, toilet fittings, interior decoration, as well as bedroom cupboards. But it does not cover cookers unless they are built in. Nor does it cover washing machines.
Policies usually include outbuildings such as garages, greenhouses and garden sheds, boundary walls and fences, patios and swimming-pools. Garden ornaments and plants, if covered, would be included in the home contents policy.
Insurance does not cover normal wear and tear, or breakdowns. If a central heating boiler breaks down, buildings insurance will not pay for the repair. But if water pipes burst as a result, the insurance should pay for the consequent damage. Damage caused by rising damp is also excluded.
It is worth checking roofs and gutters after abnormal weather. If these have been damaged, then that is not only covered by the buildings insurance but there may be grounds for claiming for consequent damage to interior decorations caused by damp.
If a tree falls on your home because of a gale, the damage is covered. If you fell your own tree and it falls on a neighbouring property, that should be covered under the liability clauses in your policy. If it falls on your own property, the damage is unlikely to be covered unless your policy includes accidental damage.
The more comprehensive buildings policies cover the cost of alternative accommodation while your property is being repaired or rebuilt. Flat-owners should check whether their buildings policy covers payment of ground rent as well.
Some policies offer a helpline for emergencies and virtually all will cover the cost of emergency repairs. There is usually an excess of pounds 250 to discourage small claims. So it may be worth considering a separate policy which covers household emergencies. For example, AA Insurance Services, through its annual cover scheme, will find a reliable repairer and pay for up to 90 minutes of labour. It does not pay for spare parts or material, however, or cover breakdowns of household appliances.
Household insurance has never been more competitive. The past decade has seen the emergence of direct insurers, who have forced the cost of premiums down by cutting costs and refining their claims procedures.
Today, insurers use sophisticated systems to give each customer an almost bespoke quote. Some quote on the number of bedrooms you have and adjust the premium according to the area in which you live; others find out a lot more about you - and if you have the right profile, or even the right postcode, the premium can drop dramatically.
It means that shopping around is likely to throw up large differences in the prices quoted. If you are not in the habit of phoning around for your contents insurance, then now is a good time to start before premiums start rising once more.
Many insurers have already warned that prices may soon rise. The country's leading telephone insurer, Direct Line, has seen its profits badly hit this year as heavy competition has driven down premiums. Warnings that the market cannot sustain such low prices suggest that price hikes are on the cards.
There are other ways to reduce your household-insurance costs. If you already have buildings insurance, taking out a contents policy with the same firm could save you money. Many insurers offer special deals for joint buildings and contents insurance.
It is also worth asking about no-claims discounts, which have moved from the motor department into the house arena. For instance, last month Legal & General introduced a no-claims discount on its new Rainbow home-insurance plan. After one year, claim-free policy-holders get l0 per cent discount, rising to 15 per cent after two years, and 20 per cent after three years. Direct insurer Churchill offers up to a 30 per cent reduction if you have had five claim-free years, and it also allows new customers to transfer their claim-free years from other insurers.
The right locks and bolts could make you eligible for insurance-premium discounts of up to l0 per cent. Check with different companies to discover which security devices will help save you money.
Taking a larger excess, say pounds 100, may also reduce premiums - but if your excess is too large, then your insurance could prove pointless. Joining a Neighbourhood Watch scheme may also reduce premiums.
It is important to check the small print on your contents policy carefully - particularly if you are buying or renting a flat - to ensure you are fully covered, warns the British Insurance and Investment Brokers' Association.
Before signing up for any insurance it is wise to take an inventory of your belongings. Most household policies, and particularly direct insurers, cover up to around pounds 30,000 to pounds 35,000 worth of belongings, but you would be surprised how quickly your possessions add up that amount. If your belongings are worth more than pounds 30,000 - or would cost more than that to replace - you may need to talk to one of the big insurance groups such as Commercial Union. Individual items worth more than pounds 1,500 will need to be specified in the policy.
If you are planning a long holiday (more than 30 days away), tell your insurer. Most companies will extend your cover, as long as you take some security precautions.
29 August 2015 12:00 AM
29 August 2015 12:00 AM
Many customers complained they were switched to the accounts without their knowledge
29 August 2015 12:00 AM
Meanwhile, high-street lenders continue to cherry-pick and be more competitive on larger loans
29 August 2015 12:00 AM
The market plummeted this week, losing all the gains made for the year
29 August 2015 12:00 AM
GetSporting.com offers deals that may be too good to be true
21 August 2015 10:00 PM
21 August 2015 10:00 PM
Rents in England and Wales rose by 1.9 per cent in July to an average of £804
21 August 2015 10:00 PM
The returns from P2P providers look more attractive than ever
21 August 2015 10:00 PM
The company failed to provide our reader's flight ticket - or a refund
14 August 2015 10:00 PM
12 August 2015 11:28 AM
Unhappy customers have been given their own Ombudsman to help fight for them.
14 August 2015 10:00 PM
An interest-free loan far outweighs the value of any of the bank's incentives
Questions of Cash: 'A connecting Vueling flight was cancelled and all my travel costs were left hanging in the air'
14 August 2015 11:30 PM
Our reader encountered problems when flying from London to Ibiza in May to take part in a charity ride
Interest rates stay at 0.5% for now - but don't wait to get a better deal on your savings and mortgage
06 August 2015 01:49 PM
The years of ultra-low rates are coming to an end
Fraudsters are bombarding older people with dangerous pension scams: here we reveal the warning signs
07 August 2015 09:07 AM
Many people are being repeatedly targeted by crooked schemes
Buying property overseas? Check out these hotspots
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
10 tips for taking out a personal loan
Number of parents moving to their desired school catchment area is increasing, according to Santander research
- 1 Huawei Mate S and Huawei Watch: new products take on iPhone 6 Plus and Apple Watch
- 2 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
- 5 Make your voice heard: Sign The Independent's petition to welcome refugees
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...
Day In a Page
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.