Insurance is a factor that will always come up when you apply for a mortgage.

Lenders need to verify that you have buildings cover, as a minimum, before they agree to the loan.

Once you have final mortgage approval and are looking forward to collecting your keys, insurance is one of those admin tasks you need to get sorted to ensure your completion goes to plan.

We appreciate that the vast number of insurance lenders, products and policy limits can make it tricky to make informed choices – so we have collated this short guide to explain how to comply with this legal mortgage requirement.

Do I Need Life Insurance as a Homeowner?

Life insurance may be a product that some brokers will push you to buy – but the reality is that you have no obligation to purchase a policy to proceed with a mortgage.

Insurance in itself is not a bad idea and can protect your family by covering the full outstanding value left on your mortgage were something to happen.

Therefore, while Think Plutus would not present life insurance as a mandatory product, we can certainly explain the risks associated with taking on a mortgage without any backing if you cannot keep up with the repayments.

What Insurances Do Mortgage Lenders Require?

The only legally required insurance cover that every mortgage lender insists on is building insurance.

Buildings cover varies, depending on the policy you choose, but protects against:

  • Structural damage.
  • Repairs to walls or the roof.
  • Interior work to restore flooring and fixtures.

The caveat is that buildings insurance applies to the fabric of the property, not to your belongings, furniture or any other possession.

Mortgage lenders require applicants to have buildings insurance because their priority is to protect the value of the home.

In essence, if there were a disaster, say your home flooded or experienced a fire, the lender wants to check that there is appropriate insurance cover to safeguard their investment.

If a lender had a mortgage secured against an uninsured property, and it became badly damaged or uninhabitable, they would lose out if they repossessed the home and needed to sell it to claw back the outstanding debt.

Choosing Appropriate Buildings Insurance and Other Cover

As we mentioned earlier, life insurance may be an advisable product but is not a compulsory requirement to move forward with a mortgage.

Other policies that you might wish to consider include:

  • Income protection insurance – these products will pay your mortgage instalments on your behalf if you suddenly lose your income. Policies differ but cover circumstances such as redundancy, ill-health or loss of regular work.
  • Critical illness insurance – similar to the above, a life insurance and critical illness policy combines both potential scenarios. Should you be unable to work for an extended period or have an accident that inhibits your ability to work, the insurance will repay the mortgage.
  • Contents insurance – buildings cover applies to the fabric of the structure and will not compensate you for loss or damage to the contents. A combined buildings and contents policy may be the right option if you have high-value appliances, jewellery, or other possessions.

Insurance is as broad an area as mortgages, with multiple variables such as excess values, limits on the number of claims you can make, maximum claim amounts and, of course, costs.

If you would like more information about the insurance requirements associated with a mortgage or independent advice about optimal coverage that will protect your interests, please get in touch with the Think Plutus team to schedule a good time to talk.

Alternatively, our Insurance Guides page offers a number of free resources that we hope you find useful.

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