Insurance Costs

Although your mortgage provider may offer the types of insurance detail below, you will not necessarily need all of them, or be bound to purchase them from your lender.

Buildings Insurance

This is a must - without a suitable buildings insurance policy you won't get your mortgage. However, if you buy a leasehold property (such as an apartment) the freeholder may have arranged buildings insurance for the whole block, in this case you may not need to buy your own individual buildings policy.

Buildings insurance usually pays out if your property is destroyed by floods, fire or subsidence; damage to fixed fittings such as kitchens and bathrooms is often included, as are as garages, greenhouses and sheds. Your cover is based on what your home would cost to rebuild - this is not the same as the market value of your home or the Council Tax band valuation.

You may have to pay an administration fee of around £25 if you don't take the policy offered by your lender; however, your chosen insurer may pay this fee for you.

Contents Insurance

Contents insurance will cover for the cost of replacing (or repairing) the contents of your home if they are lost, stolen, damaged, or destroyed. If you are moving, you'll need a new policy for your new address.

Life Insurance

Mortgage lenders like you to have life insurance as the policy will pay off the mortgage if you die. If you choose an interest-only mortgage backed by an insurance-based savings plan then paying for life insurance is unavoidable; however, with other types of mortgage you usually have a choice. If you are single and dependent-free, then you don't need life cover. If you have a joint mortgage and/or children, then you probably do.

Mortgage Payment Protection Insurance (MPPI)

Also known as accident, sickness and unemployment (ASU) cover. This type of policy aims to meet your mortgage repayments for 12 months (sometimes 24) if you're not earning as result of illness or redundancy. This means that if your ability to meet your monthly mortgage repayments will be unaffected by illness or unemployment, then you won't need this type of policy. If you're an employee with a decent sick-pay scheme, then having a policy that pays out if you become unemployed could be useful, but you're unlikely to benefit from sickness cover. The reverse may be true if you're self-employed.

You are unlikely to benefit from MPPI if you work fewer than 16 hours a week, if you're already out of work, if you're a contract worker or if you have not been in continuous employment for at least six months.

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 multiple sclerosis, cancer, loss of limbs/ hearing/eyesight/ speech). Whether you need critical-illness insurance or not depends on several factors: the likelihood of serious illness striki...