First-Time Buyer Protection Guide

Protecting Yourself and Your Home After Buying Your First Property

Buying your first home is a major financial step.

Much of the mortgage process naturally focuses on whether you can afford to buy the property today: your deposit, income, credit history, mortgage payments and the lender's affordability assessment.

But there is another question worth considering:

What would happen after you bought the property if your circumstances changed unexpectedly?

What if one of you died?

What if you were diagnosed with a serious illness?

What if illness or injury prevented you from working for months or even years?

Getting the mortgage allows you to buy the home. Protection planning considers how you might keep the home and maintain your financial commitments if something goes wrong.

This guide explains the main types of protection first-time buyers may want to consider and how they address different financial risks.

Why Should First-Time Buyers Think About Protection?

Buying a property normally creates a substantial long-term financial commitment.

Before buying, you may have been renting or living with family.

After completion, you could become responsible for:

• mortgage repayments;

• council tax;

• utilities;

• insurance;

• maintenance;

• repairs;

• service charges where applicable; and

• other household costs.

At the same time, much of your available savings may have been used towards the deposit and purchase costs.

That combination can leave a household more exposed financially if income suddenly falls.

A Mortgage Is a Long-Term Commitment

Mortgage affordability is assessed using your circumstances when you apply.

But a mortgage can continue for decades.

During that period, circumstances can change.

You might experience:

• illness;

• injury;

• redundancy;

• changes in income;

• starting a family;

• career changes; or

• the death of somebody contributing to the mortgage.

Protection cannot prevent these events.

Its purpose is to help reduce the financial consequences of certain events when they occur, subject to the terms of the policy.

Is Insurance Compulsory When Buying a Home?

Different types of insurance serve different purposes.

Buildings insurance is commonly relevant to the property itself and mortgage lenders may require appropriate buildings insurance to be in place as part of their lending conditions.

Personal protection such as life insurance, critical illness cover and income protection is different.

These policies are designed around the people responsible for the financial commitments.

The fact that a particular type of personal protection may not be a standard mortgage requirement does not mean the financial risk disappears.

Protecting the Property vs Protecting the People

It is useful to separate these two ideas.

Property insurance can protect the building or possessions against specified events.

Personal protection can help protect the household financially if death, serious illness or inability to work affects the people responsible for paying the mortgage and bills.

Both can be important, but they solve different problems.

Start With Your Mortgage Payment

Consider what would happen if one income suddenly disappeared.

Could the remaining household income continue paying the mortgage?

If you are buying alone, what happens if your own earnings stop?

If you are buying jointly, could either person maintain the property without the other's financial contribution?

These questions help identify where protection gaps may exist.

Protection for Joint First-Time Buyers

Buying together does not necessarily mean the financial risk is automatically shared equally.

One person may earn considerably more than the other.

Alternatively, both incomes may be required to maintain the mortgage and household expenditure.

Consider each person separately.

Ask:

What happens financially if person one dies or cannot work?

Then:

What happens if person two dies or cannot work?

The answer can produce different protection needs for each person.

Protection When Buying Alone

A sole buyer can have a different protection need.

If there is no second income available, inability to work could have an immediate effect on the ability to maintain the mortgage.

Life insurance needs may depend more heavily on whether anyone else is financially dependent on you or whether there are other reasons for protecting the mortgage debt.

Income protection may be particularly relevant because your earnings are supporting the mortgage without another borrower's income.

Life Insurance for First-Time Buyers

What Is Life Insurance?

Life insurance is designed to provide a benefit if the insured person dies during the policy term and a valid claim is made.

For a homeowner, one possible objective is to provide money that could repay or reduce the mortgage.

However, life insurance can also provide wider family protection.

Should Life Insurance Match the Mortgage?

It can, but it does not automatically have to.

If the objective is purely mortgage protection, the outstanding mortgage is an obvious starting point.

But if somebody else depends financially on you, there may be additional needs.

These could include:

• household expenditure;

• other debts;

• childcare;

• lost income; and

• longer-term family support.

The appropriate amount should therefore be considered around the financial problem you want the policy to solve.

Level vs Decreasing Life Insurance

First-time buyers may encounter both level and decreasing cover.

Level Cover

The amount insured generally remains level during the policy term, subject to the policy conditions.

Decreasing Cover

The insured amount reduces over time and is commonly associated with protecting a repayment mortgage.

Neither is automatically appropriate simply because you are buying your first property.

The choice depends on the objective of the cover.

Do Unmarried Couples Need to Think Differently?

Being joint mortgage borrowers does not necessarily determine what happens to insurance proceeds or other assets.

Unmarried couples should consider carefully:

• property ownership;

• beneficiaries;

• wills;

• life insurance arrangements; and

• whether appropriate trust arrangements should be considered.

These issues can have legal implications, so legal advice may be appropriate.

Critical Illness Cover for First-Time Buyers

What Is Critical Illness Cover?

Critical illness cover is designed to provide a benefit following diagnosis of a specified serious condition where the policy definition and claim requirements are met.

Unlike life insurance, the insured person is still alive.

They may, however, face significant financial disruption.

Why Can Critical Illness Affect a Mortgage?

Suppose you become seriously ill.

You may need time away from work.

Your income could reduce.

Your partner may also need to reduce their working hours to provide support.

Meanwhile, the mortgage continues.

A critical illness benefit could potentially be used to:

• repay the mortgage;

• reduce the mortgage;

• repay other debts;

• support household expenditure;

• fund adaptations; or

• provide a financial reserve.

How the money is used depends on individual circumstances.

Does Critical Illness Cover Every Serious Illness?

No.

Critical illness policies contain specified conditions and definitions.

A diagnosis does not automatically mean a claim will be payable.

The condition must satisfy the relevant policy definition and other claim requirements.

Policies can differ considerably, so the quality of the definitions and benefits matters as well as the price.

Income Protection for First-Time Buyers

What Is Income Protection?

Income protection is designed to provide a regular benefit if illness or injury prevents you from working and you meet the policy's definition of incapacity.

This is different from life insurance and critical illness cover.

Income protection focuses on your ability to earn.

Why Is Income Protection Relevant to a Mortgage?

Most mortgages are paid from monthly income.

If your income stops but you remain alive, the mortgage still needs to be paid.

So do:

• council tax;

• utilities;

• food;

• transport;

• insurance;

• childcare; and

• everyday living expenses.

Income protection can potentially provide regular financial support while a valid claim continues, subject to the policy terms.

Your Income May Be Your Biggest Financial Asset

First-time buyers often spend considerable time protecting the property itself.

But consider the income that will fund the mortgage over its entire term.

Over many years, the cumulative value of your future earnings can be substantial.

Without that income, maintaining the mortgage could become difficult even if the property itself is fully insured.

What Is a Deferred Period?

Income protection does not necessarily begin paying immediately.

The deferred period is the period you generally need to be unable to work before the policy benefit starts.

An appropriate deferred period can be considered alongside:

• employer sick pay;

• savings;

• partner's income; and

• other financial resources.

Check Your Sick Pay Before Arranging Income Protection

Find out exactly what your employer provides.

You should understand:

• how long full pay continues;

• whether reduced pay follows;

• how long reduced pay lasts; and

• when employer support ends.

This can help determine when you would actually need an income protection benefit to begin.

What About Protection Through Work?

Death in Service

Some employers provide a death benefit while you remain eligible under their scheme.

This can be valuable.

However, it is normally linked to your employment.

If you move employer, the benefit may change or disappear.

Employer Sick Pay

Some employers provide generous sick-pay arrangements.

Others provide considerably less support.

Knowing what you actually receive is important when assessing income protection.

Group Income Protection

Some employers provide group income protection.

If available, understand:

• the amount of benefit;

• when it begins;

• how long it can continue;

• eligibility requirements; and

• what happens if you leave the employer.

Private Medical Insurance

Private medical insurance is different from life insurance, critical illness cover and income protection.

Its primary purpose is related to accessing eligible private medical treatment under the terms of the policy.

It is not designed simply to repay your mortgage or replace your salary.

Different protection products should therefore not be treated as interchangeable.

Buildings Insurance

Why Is Buildings Insurance Different?

Buildings insurance protects the physical property against insured risks.

A mortgage lender will generally have requirements relating to buildings insurance.

The policy needs to be appropriate for the property and lender requirements.

For leasehold properties, buildings insurance may sometimes be arranged through the freeholder or management arrangements rather than directly by the individual flat owner.

When Should Buildings Insurance Start?

The point at which responsibility for insuring a property begins can depend on the transaction and circumstances.

Your solicitor or conveyancer can confirm your legal responsibilities and the point at which appropriate cover needs to be in place.

Do not simply assume it starts when you collect the keys.

Contents Insurance

What Does Contents Insurance Protect?

Buildings insurance and contents insurance are different.

Buildings insurance generally relates to the structure.

Contents insurance relates to possessions, subject to the policy terms.

Consider items such as:

• furniture;

• electronics;

• clothing;

• appliances;

• jewellery; and

• other belongings.

The appropriate level of cover depends on what you own and the policy terms.

How Much Protection Does a First-Time Buyer Need?

There is no universal package.

A useful protection review considers the financial consequences of different events.

If You Died

Ask:

• Who would inherit or remain responsible for the property?

• Would somebody else need the mortgage repaid?

• Does anybody depend on your income?

• Are there other debts?

• Do you have children?

• What existing life insurance is available?

This helps establish potential life insurance needs.

If You Became Seriously Ill

Ask:

• Would you want the mortgage reduced or repaid?

• How would income change?

• How much savings do you have?

• Could your partner continue working normally?

• Could additional expenses arise?

• What critical illness protection already exists?

This helps establish potential critical illness needs.

If You Could Not Work

Ask:

• How long would your employer pay you?

• How much does the household need each month?

• How long would savings last?

• Could the other borrower maintain the mortgage alone?

• What existing income protection is available?

This helps establish potential income protection needs.

First-Time Buyers and Limited Savings

Buying your first property can consume a significant amount of available cash.

Money may be required for:

• deposit;

• legal work;

• mortgage-related costs;

• surveys;

• removals;

• furniture;

• repairs; and

• initial household expenses.

After completion, the emergency fund may be smaller than it was before the purchase.

This can make the household more financially vulnerable during the early years of homeownership.

Don't Use Every Penny to Buy the Property

Where possible, it can be sensible to consider retaining an emergency reserve rather than committing every available pound to the purchase.

Owning a property creates expenses that renters or people living with family may not previously have encountered.

Boilers fail.

Appliances break.

Roofs need repairs.

Cars still need servicing.

Insurance can help with specific risks, but it does not replace the need for sensible emergency savings.

Protection and Your Monthly Budget

Protection premiums become another regular household expense.

They therefore need to be sustainable.

There is little benefit in arranging an extensive protection package that becomes unaffordable shortly after completion.

If the ideal level of cover exceeds the available budget, priorities can be considered.

This may involve looking at:

• which risks create the greatest financial consequences;

• existing employer benefits;

• existing policies;

• savings;

• amounts of cover;

• policy terms; and

• different policy structures.

Protection planning does not need to be all or nothing.

Don't Choose Protection Only by Price

First-time buyers are often managing a tight budget.

It can therefore be tempting to select whichever insurance policy produces the lowest monthly premium.

Price matters, but policies can differ in:

• definitions;

• benefits;

• exclusions;

• underwriting;

• flexibility;

• claim periods;

• additional services; and

• policy conditions.

A cheaper policy is not automatically more suitable.

Medical Underwriting

Why Will Insurers Ask About My Health?

Life insurance, critical illness cover and income protection can involve medical underwriting.

Insurers may ask about:

• current health;

• previous medical conditions;

• medication;

• investigations;

• family medical history;

• smoking or nicotine use;

• occupation; and

• lifestyle.

The insurer uses this information to decide whether it can provide cover and on what terms.

Does a Medical Condition Mean I Cannot Get Protection?

Not necessarily.

Depending on the circumstances, an insurer might:

• offer standard terms;

• increase the premium;

• apply specific terms or exclusions where appropriate;

• request further medical evidence;

• postpone consideration; or

• decline the application.

Different insurers can assess the same circumstances differently.

Accurate Disclosure Is Essential

Answer insurance application questions accurately and completely.

Do not try to decide for yourself whether something is relevant enough to disclose.

Answer the questions as they are asked.

Incorrect or incomplete information can affect the assessment of a future claim.

When Should First-Time Buyers Arrange Protection?

Protection should ideally be considered as part of the wider home-buying process rather than as an afterthought months after completion.

This gives you time to:

• understand your needs;

• review existing benefits;

• compare options;

• complete underwriting; and

• resolve any medical evidence requirements.

It also means protection can be coordinated with the point at which your new financial commitments begin.

Don't Leave Underwriting Until the Last Minute

Some applications are straightforward.

Others require additional medical information.

An insurer may need further evidence before deciding whether cover can be offered.

Leaving protection until immediately before completion can create unnecessary pressure.

Starting the discussion earlier allows more time to deal with underwriting properly.

Should I Take the Insurance Offered With My Mortgage?

The mortgage and protection should be considered separately.

Obtaining a mortgage from a particular lender does not automatically mean an insurance policy associated with that lender or provider is the most appropriate protection solution for you.

Protection should be considered around:

• your needs;

• circumstances;

• existing cover;

• policy features;

• underwriting; and

• budget.

The mortgage recommendation and protection recommendation solve different problems.

Should Couples Have Joint or Separate Policies?

It depends on the type of cover and circumstances.

For life insurance, a joint policy may operate differently from two separate single-life policies.

A common joint-life structure pays following the first insured event covered by the policy and then ends.

With two separate policies, a claim on one policy does not automatically mean the other person's separate policy ends.

Critical illness arrangements can also differ depending on how policies are structured.

The consequences of a claim should be understood before choosing between structures.

Should First-Time Buyers Consider Trusts?

Trusts can sometimes be used with life insurance to help determine who should receive the policy proceeds and how those proceeds are administered.

Whether a trust is appropriate depends on individual circumstances.

This can be particularly worth considering where there are:

• unmarried partners;

• children;

• previous relationships; or

• specific wishes about beneficiaries.

Trusts have legal consequences and should be completed correctly. Legal or tax advice may be appropriate.

What Happens if We Move Home Later?

Your first property may not be your last.

You might later:

• move to a larger home;

• increase your mortgage;

• start a family;

• change jobs; or

• experience significant income changes.

Protection arranged for your first property should therefore be reviewed when circumstances change.

Do not automatically assume the policy arranged today will remain appropriate throughout your entire mortgage journey.

What Happens if We Remortgage?

Remortgaging does not automatically mean existing protection needs to be replaced.

Instead, review whether the existing policies still match:

• mortgage amount;

• mortgage term;

• income;

• family circumstances; and

• financial priorities.

Replacing existing insurance unnecessarily can be disadvantageous, particularly if health has changed since the original policy was arranged.

Don't Automatically Cancel Existing Protection

If you already have protection before buying your first property, review it before replacing it.

An existing policy may have been arranged when you were younger or had a different medical history.

A new application will normally be underwritten using your current circumstances.

The new terms may therefore be different.

Never Cancel Existing Cover Before Replacement Cover Starts

Submitting an application does not mean the new insurance has been accepted.

Further underwriting may be required.

The insurer could also offer terms different from those originally expected.

Existing protection should generally remain in force until replacement cover has been accepted, started and the implications of replacing the original policy are understood.

A First-Time Buyer Protection Checklist

Before or around completion, consider the following.

Your Property

• buildings insurance;

• contents insurance;

• property-specific insurance requirements.

Your Mortgage

• outstanding mortgage amount;

• monthly mortgage payment;

• mortgage term;

• whether one income could support the mortgage.

Life Insurance

• who would be financially affected by your death;

• mortgage protection;

• other debts;

• family protection;

• existing life insurance;

• Death in Service.

Critical Illness Cover

• what would happen financially after serious illness;

• whether you would want the mortgage reduced or repaid;

• existing critical illness cover;

• household savings;

• dependants.

Income Protection

• monthly income;

• employer sick pay;

• essential expenditure;

• savings;

• deferred period;

• existing workplace protection;

• how long protection may be required.

Wider Planning

• emergency savings;

• wills;

• beneficiaries;

• trust considerations where appropriate;

• existing employer benefits;

• future family plans.

Buying the property is only one part of becoming financially responsible for a home.

The next question is how resilient that arrangement would be if life does not go according to plan.

Speak to Cambs Ely Mortgages About First-Time Buyer Protection

Buying your first home is an exciting milestone, but it also creates new financial responsibilities.

We can discuss your mortgage, income, monthly commitments, savings, employer benefits, existing policies and future plans before considering which protection risks may need to be addressed.

Cambs Ely Mortgages provides mortgage and protection advice to first-time buyers in Ely, Cambridge, Cambridgeshire and across England, with remote appointments available.

Discuss Your Mortgage and Protection Needs

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Important Information

The information contained in this guide is intended for general educational purposes and does not constitute personalised mortgage, financial, insurance, medical, legal or tax advice.

Protection policies vary between insurers. Cover, benefits, exclusions, definitions, premiums, underwriting decisions and policy terms depend on the insurer, policy and individual circumstances.

Critical illness insurance does not cover every illness or diagnosis. Income protection claims are subject to the policy's definition of incapacity and other policy terms.

Buildings and contents insurance policies also contain terms, conditions, limits and exclusions.

Do not cancel existing protection until any replacement cover has been accepted, is in force and you understand the consequences of replacing the existing policy.

Your property may be repossessed if you do not keep up repayments on your mortgage.