What Insurance do you Need?

Although your lender may offer the types of insurance detail below, you will not necessarily need all of them.

Buildings Insurance

This is a must - without a suitable policy you won't get your mortgage. If you don't take the policy offered by your lender, you may have to pay an administration fee of around £25, although the insurer you decide to use may pay this fee for you.

Contents Insurance

Cover is the cost of replacing (or repairing) belongings if they are lost, stolen, damaged, or destroyed. If you are moving, you'll need a new policy for your new address.

Life Insurance

Lenders like you to have life insurance because it pays off the mortgage if you die. Paying for life insurance is unavoidable if you choose an interest-only mortgage backed by an insurance-based savings plan, but with other sorts of mortgage usually have a choice. If you are unattached and dependent-free, you don't need life cover. If you have a joint mortgage and/or children, you probably do.

Critical-Illness Insurance

Critical-illness policies pay out a lump sum if you are diagnosed as having one of the defining list of life-threatening or seriously debilitating conditions (such as cancer, multiple sclerosis, loss of limbs/eyesight/hearing/speech). Whether you need critical-illness insurance or not depends on several factors: the likelihood of serious illness striking before your mortgage is paid off, how would it affect your finances, and what other resources you have available.

Combined Life and Critical-Illness Insurance

The drawback of critical-illness insurance is that, typically, it will not pay out if you die within 28 days of the diagnosis of a serious illness. So, to plug this gap, many lenders sell policies that combined life with critical illness cover. If you decide you need both, combined cover tends to be cheaper.

Mortgage Payment Protection Insurance (MPPI)

Also called accident, sickness, and unemployment (ASU) cover. It aims to meet your mortgage repayments that 12 months (sometimes 24) if you're not earning as result of redundancy or illness. So you don't need it if your ability to meet your monthly mortgage repayments will be unaffected by illness or unemployment. If you're self-employed, having a policy that pays out if you are too ill to work could be useful, but you're unlikely to benefit from unemployment cover. The reverse may be true if you an employee with a decent sick-pay scheme. You are unlikely to benefit from MPPI if already out of work, work fewer than 16 hours a week, have not been in continuous employment for at least six months, or are a contract worker.