Buyers, note this: no cover, no exchange

Buildings insurance may not be at the top of your list of priorities. But you can't exchange without it, writes Melanie Bien
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The Independent Online

Reaching the point when you exchange contracts is quite an achievement, considering everything that can go wrong when you purchase a property. So imagine how frustrating it would be to get this far only to find that the whole process has to be suspended because you haven't got the right insurance - particularly when you could easily have avoided the problem.

On the day she was due to exchange contracts on her new house in Newcastle-under-Lyme, Staffordshire, Molly Langmead found herself in just this position. Her solicitor asked whether she had arranged buildings insurance on her new property. As she hadn't, exchange of contracts couldn't happen.

"My mortgage broker guided me through the process, as I am a first-time buyer," says Ms Langmead. "He processed my application form. My lender was offering buildings and contents insurance but the broker told me this was optional and I could get a better deal elsewhere. What I wasn't told was that I needed to take out buildings insurance before I could exchange contracts."

The hiccup meant she couldn't exchange before going on holiday later that day, so the purchase couldn't be completed as planned while she was away.

"This has delayed everything," she says. "When I get back from holiday I'll have to research insurance policies."

Ms Langmead's experience is not unusual. The housebuying process is an obstacle course, in which you must find a property you like, put in an offer, arrange surveys and financing, fill in the mortgage application form and take out insurance. Amid all this, it is easy to forget something. But insurance shouldn't come bottom of your list of priorities. As Ms Langmead found, buildings cover is vital before exchange of contracts. And because disasters can occur between then and completion, it is worth putting your contents cover and mortgage protection cover in place, too.

"Your buildings insurance must be effective from the day of exchange of contracts," confirms Lorraine Robson, personal insurance manager at insurance broker and independent financial adviser Towry Law. "Otherwise you could end up being jointly liable with the previous owners for any damage caused to the property after this date."

Mark Harris, managing director at mortgage broker Savills Private Finance, warns that some vendors cancel their buildings cover once they have exchanged contracts. "Many properties end up being dual insured, but this is not always the case," he says. "The buyer is contractually obliged to buy the property once contracts are exchanged even if the property burns down before they complete."

The contents of your home should be covered while you are moving, but check beforehand. "Existing insurance will be adequate if you are moving from property to property within the UK on the same day," adds Ms Robson. "However, if you are moving in stages or going to live abroad, you will probably need to take out a temporary extension to your home contents insurance."

Friendly society Liverpool Victoria tries to ease the process for customers who already have its buildings and home contents insurance when buying a new home. "Before you move, we give you a quote, and from the date of exchange until you move in, your new property will be covered for free," says a spokesman. "And when you move your belongings, they are covered in transit provided you use a professional removal firm, and glass and brittle items are packed by a professional. If your move takes a few days, your contents are still insured at the new property."

Insurers operate different policies, so read the small print on your existing one. You should also check the security at your new home, particularly if you are transferring cover from another property. Many insurers require doors fitted with locks to British Standard and key-operated window locks. If these are not in place, your insurance could be rendered invalid should you have to make a claim.

And while you are arranging buildings and contents insurance, don't forget mortgage protection cover. "Once you make a commitment to purchase a property you should have mortgage protection," advises Mr Harris.

The most common form is accident, sickness and unemployment (ASU) insurance, also known as mortgage payment protection. But to avoid duplication, check whether you are already protected by your employer's accident and sickness cover.

ASU tends to pay out only for a year, but income protection or critical illness cover (CIC) pays out indefinitely until you return to work. It can also be written on an "own occupation" basis, while ASU is written as "any occupation", so even if you are unable to do your current job, it won't pay out if there is some other kind of work you could do.

'The right insurance smoothed our move'

Victoria Maggs and her boyfriend Peter Wake, both 26, recently bought their second home in Branksome, Dorset. They decided to transfer their existing joint buildings and contents insurance from Liverpool Victoria over to the new property. It made life easier and ensured they were covered throughout the house-buying process.

"We warned Liverpool Victoria that we were moving," explains Ms Maggs. "They sent us a quote and, as soon as we exchanged, our buildings and contents insurance was switched over to the new property.

"Our contents weren't covered for the move, as we did that ourselves rather than using a professional removal firm. But we felt it was worth the risk because it's not as if we've got family heirlooms or anything like that."

While Ms Maggs was already a satisfied Liverpool Victoria customer when she moved house, she still compared the quote with others on the market.

"It turned out to be one of the cheapest quotes, if not the cheapest," she says. "I looked at quite a few other policies on the internet and Liverpool Victoria came out considerably better."

Although the couple are fortunate in that they have never had to make a claim on their insurance, they are happy with the service they have received from Liverpool Victoria and say they "definitely" intend to stick with the insurer.