Even on a mortgaged property, you are free to choose your insurer - the mortgage does not tie you to one. Switching does have one extra party involved, though: the bank, in whose favour a mortgagee clause sits on the contract. The good news: this is not an obstacle, just an extra administrative step with a right order to it.
- The insurer can be freely chosen even with a mortgage - the bank typically expects adequate cover and a clause in its favour, nothing more.
- The right order: new contract with the clause, then notifying the bank, then cancelling the old contract - following the loan agreement's rules.
- On the details, the loan agreement and the bank's information always prevail - it is worth checking the bank's requirements too before switching.
What does the bank expect, and what can it not require?
The bank's interest is that the property serving as collateral is continuously covered by adequate property insurance, with a clause in its favour. Typically expected: an adequate sum insured (matching the loan amount or the rebuilding value) and basic fire-and-natural-perils cover. What the bank typically cannot require, though, is which insurer you use - the right to switch is yours. The exact requirements are set out in your loan agreement and the bank's own information; if in doubt, a quick query to the bank before switching can save a good deal of follow-up work.
The right order when switching
1. Take out the new contract so that it includes the mortgagee clause in the bank's favour - for this you will need the loan details (the bank's name, the loan agreement number). 2. Get the new policy or a certificate of cover to the bank - this is typically what they need for their records. 3. Only then cancel the old contract, the proper way - following that year's March-window rules in March, or otherwise typically the renewal rules. That way, with precise timing, there typically isn't a moment when the bank sees the property as uncovered.
The typical pitfalls
Three recurring mistakes: the clause is left out of the new contract (the bank flags it, and you end up chasing the issue); the old contract ends before the new certificate has reached the bank; and the sum insured on the new contract is lower than the bank requires. All three can be avoided by working through the switch unhurried, following the checklist - with a mortgage, the banking items on the list matter especially.
Watch the timing too: getting the certificate of cover and having the bank process it can take a few days, so do not leave this step to the last minute when switching with a mortgage - for a March switch, for instance, it is worth starting early in the month.
A related but separate question: mortgage life cover
Home insurance protects the property - making sure the family can keep up repayments if the earner's income is lost is a job for a different tool: mortgage-linked life cover. The two complement each other well, but should not be confused; our sister site covers the latter in detail: life cover alongside a mortgage, on elet.biz (in Hungarian). If you would rather not handle the switch and the banking side alone: I can help - book a time.
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