Why You Need Buildings And Contents Insurance To Take Out A Loan

Credit checks, proof of income and any previous issues with money are all factors in the lender’s final decision—but many people forget about buildings and contents insurance.

In some cases, insurance is advisory, but in others, it’s mandatory. Read on to learn about buildings insurance and how it can speed up your loan application.

The different types of buildings insurance

Generally, there are two types of building insurance; sum-insured and bedroom-rated. Each has its advantages, but it depends on which you decide is best for your needs.

Sum-Insured Buildings Insurance

Sum insurance uses the cost of rebuilding and repairing your property in the event of severe damage. The policy covers the cost of the repairs, including contractor fees, but it relies on these expenses rather than using the property’s market value.

Bedroom-Rated Insurance

Bedroom-rated policies ensure people don’t under-insure because they rely on the number of bedrooms a property has. Some people prefer this method because it offers peace of mind, but it can negatively impact how much building insurance you pay each month.

What does buildings insurance cover?

The average buildings insurance policy covers accidental damage and loss, as well as malicious damage. So, if your property is impacted by the following, you’ll be able to make a claim:

• Natural disasters (floods and storms)

• Explosions, smoke and fire

• Subsidence

• Plane and car crashes

• Damage caused by lampposts, trees and other debris

• Malicious damage and vandalism

There are also some exclusions to consider when you buy building insurance. They include:

• General neglect

• Wear and tear of permanent fixtures

• Frost damage

• Any damage caused by pests

• Poor workmanship

Some insurance providers allow you to purchase an add-on for accidental damage, which might cover your property, but it’s best to check with your chosen insurance company.

Avoid the costs of property damage

Paying for property damage yourself can create a significant dent in your wallet. According to Check A Trade, the average cost for house subsidence is £12,500, while Unbiased lists the expenses of typical structural repairs at £13,500.

When you have buildings insurance coverage, the provider typically pays for most or all of the damage. Having security can give you peace of mind, and even though home insurance does require a monthly investment, it will save money in the long run.

Protect your personal belongings

Some belongings have financial value, while others are more sentimental. While no money can replace photographs, contents will pay for other items such as TVs, appliances and anything else you list in the policy.

When you think about how much your belongings are worth, a contents insurance policy ensures you don’t have to pay for repairs and replacements.

Loan providers like financial security

Mortgage lenders and secured loan providers offer money to homeowners because they use their homes as collateral. If you don’t meet your monthly instalments, the lender can repossess your home and get the money back.

As security is so important to lenders, they’ll want to know you have buildings insurance so they can recover their money if needed.

As both insurance types are vital, it’s essential to do your research before making a decision. Asking yourself the following questions will make choosing the right provider easy.

Which policy is best?

While some people like having the peace of mind that maximum cover offers, it’s not for everyone.

There are alternatives to bedroom-rate building insurance that are less expensive. However, these policies can also be risky as they don’t protect all of your personal belongings. 

It’s best to compare insurance policies and see which fits your needs.

Does your mortgage provider have any stipulations in place?

Your chosen mortgage lender might have guidelines limiting your policy options. While some will be happy with adequate coverage, others might want full coverage, so they’ll spend more monthly.

It’s also important to consider whether the mortgage provider has a preferred insurance company that it partners with because you might get a better deal.

Can bundling policies save money?

Bundling policies means getting both buildings and contents covered by the same insurer. In most cases, you can save money by bundling policies, but you should still check the terms of the agreement.

Will you take steps to keep the insurance costs down?

Making your monthly mortgage repayments is a significant financial investment, and adding insurance means you’ll have to budget effectively. While insurance is in place to pay for damages, your costs will rise if you make a claim.

Protecting your belongings from damage and performing regular maintenance on your building will ensure your payments stay the same.