Buildings & Contents Insurance
Insuring the building against damage from fire and other perils is essential, not just for the borrower, but also because the lender will usually insist on it as a condition of the loan. In fact, some lenders may insist on the cover being effected through them in order that they can ensure that a reputable provider is used and they will also receive commission. This is more likely when a special deal, such as a fixed rate loan or discount, is involved.
Contents are covered against loss or damage only whilst in the house. Personal possessions such as watches, jewellery and bicycles can be covered against loss or damage whilst outside the home if a special addition to the policy known as 'all risks' is purchased.
The contents are insured under one total sum insured. If any items are particularly valuable, the insurer should be notified as the policy may need to be extended (and an extra premium charged) or the items may need to be insured separately. Otherwise, the insured may find that their ordinary contents policy does not cover these articles.
The vast majority of homeowners purchase property insurance as a combined buildings and contents policy. Most lenders offer these policies for properties of orthodox construction and up to a specified maximum value, usually written on a block basis.
In practice, the borrower is able to choose the lender's product or shop around for a suitable alternative from a third party provider, unless the lender's product is a tie-in for a special mortgage deal.
Lenders' block policies provide the assurance that the property will always have cover provided for full reinstatement value and of a quality that will comply with the lender's minimum requirements. Cover is continuous and premiums can usually be paid on a monthly basis alongside the mortgage repayment.
Where the borrower chooses to insure with a company that does not have an agency arrangement with the lender, the latter may insist on several conditions:
- the insurance company is a reputable company;
- the lender's interest in the property is noted;
- the cover is for the full reinstatement value of the property, index-linked annually to protect against inflation;
- failure to pay the premium is notified to the lender so that the lender can make this payment and debit the mortgage account with an equivalent sum;
- the lender is notified of large claims;
- large claims (typically in excess of £1,000) are paid directly to the lender.
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