Buildings And Contents Insurance

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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.

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Are you a homeowner or a tenant?

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

Buying a house or borrowing money to improve your life can be both exciting and daunting at the same time. Along with finding the right mortgage provider or loan company, you’ll also have to fulfil the lender’s eligibility criteria.

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.

What is buildings insurance?

Buildings insurance protects your property should it incur any damage from natural disasters or anything else. It covers the structural elements of a building, including:

  • The roof
  • Windows
  • Exterior
  • Fences
  • Garage
  • Garden sheds
  • Pipes
  • Cables
  • Drains

The insurance should cover everything from minor damage to rebuilding the property, as it ensures homeowners (and mortgage providers) don’t lose their investment.

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.

What is contents insurance?

While buildings insurance protects your building, contents insurance covers everything in it. For example, you could cover heirlooms, tech equipment, clothing, and toys.

Contents insurance cover is essential because replacing home furnishings and other items can cost a fortune, but the right insurance means you won’t have to worry about costs.

The types of content insurance

There are two contents insurance options available:

As New: This policy is more expensive because it pays for the item at its purchase price instead of the current market value. You’ll receive more money in the event of damage but also pay more each month.

Indemnity: Most people opt for an indemnity policy, which looks at what each item is worth in its current state. While you won’t necessarily receive the entire value, your monthly payments will also be lower.

There are also potential add-ons available, including cover for accidental damage, home emergency cover, and alternative accommodation. Parents can also insure the belongings their children take to university.

The importance of buildings and contents insurance

Building and contents insurance isn’t a legal requirement, but you’ll need cover if you purchase a home with a mortgage.

The main reason for this is your mortgage provider wants to know that you’ll be able to pay for any damage that occurs to – and in – the property.

From the day you exchange contracts, you’re responsible for your home and taking out a mortgage or other form of secured loan means the lender also has a stake in the property.

Let’s take a look at why both buildings and contents insurance are so important.

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.

Which loan types require home insurance?

If you’re applying for a mortgage, you’ll need to prove you have the right insurance, or lenders won’t offer you any money. However, as secured loans also use collateral, some lenders will also list insurance as part of their eligibility criteria.

It’s always best to check before making an application so you know what you’re getting into. If you don’t want to invest in insurance, an unsecured loan might be the better choice—as it doesn’t require any assets.

Mortgages are only available as secured loans, but you can apply for an unsecured arrangement to pay for cars, holidays or other purchases.

Things to consider when taking out buildings and contents insurance

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.

Looking for a great mortgage package? Believe Loans can help

The right mortgage lender can make your life much easier and give you the financial freedom you deserve. Whether you’re a first-time buyer or want to remortgage your current property, our team of brokers can help you find the right deal.

Contact us today for a free consultation, and we’ll get the ball rolling on your claim.

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