Home insurance your mortgage bank requires and your alternatives

Key rules

• Your choice of insurer: The bank must accept an equivalent policy from another insurer and cannot charge you for assessing it.
• Sum insured: The building cover must be at least the rebuilding value, not the market price.
• Notice: Give written notice at least one month before the annual renewal to stop automatic renewal.
• Interest discount: Cancelling without a replacement usually removes your interest discount.

What the bank can require

Your bank can require building cover, but it must accept an equivalent policy from another insurer. This applies to residential mortgages signed since 16 June 2019. The bank cannot charge you for checking the other policy, and it cannot worsen your loan terms because you chose another insurer. You are free to pick the insurer.

The bank may also ask for life or similar cover as a guarantee. The same rule applies: an equivalent policy from another insurer must be accepted.

What an equivalent policy looks like

The policy needs to cover the building (the "continente") against fire, explosion, lightning, water damage, storm and similar damage. Each bank sets its own minimum list of risks, so read the loan deed before you shop.

• Sum insured: at least the rebuilding value of the home. Do not use the land value or the market price.
• Beneficiary: the bank is named as beneficiary, or your claims are assigned to it, up to the outstanding loan.
• Duration: the policy stays in force for the life of the loan. You pay the premiums and give the bank proof at each renewal.

Contents, theft and liability cover are not normally required. Add them only if you want them.

Watch the interest discount

Banks often give a discount on your interest rate (a "bonificación") for taking other products. The discount must be quantified and explained in your pre-contract documents (the FEIN). Check there whether the home policy is a condition.

If it is, cancelling the bank's policy without a replacement usually removes the discount, and your rate rises as set in the loan contract. If you replace it with an equivalent policy and send the bank proof, you should keep the discount. Cancelling the bank's policy can also cost you other bonuses, so read the loan contract first.

How to switch

Give written notice at least one month before the annual renewal date to stop the bank's policy renewing automatically. Cancelling in the middle of the year is possible only in limited cases. If the policy ends early, for example because you replaced it, you are refunded the premium for the unexpired period. Your loan contract and policy conditions decide the details.

Ask your bank to confirm in writing that it accepts the new policy before you cancel the old one. This avoids a gap in cover. The timeline below sets out the order of steps, and the documents list shows what to send the bank.

Choosing

The decision block below helps you compare keeping the bank's policy, switching, and cancelling without replacing it. Cancelling with no replacement is the risky option: it breaks the loan requirement and usually costs you the discount.

Choosing between options

Should you keep the bank's home policy or use an equivalent policy from another insurer?

• Keep the bank's policy: It fits if the premium is competitive and you want the least paperwork, especially if your interest discount depends on it.

• Switch to another insurer's equivalent policy: It fits if you find cheaper cover with the same building risks and a sum insured at least equal to the rebuilding value. The bank must accept it, and you give it proof of the new cover to keep your discount.

• Cancel without replacing it: Avoid this: the interest discount usually disappears and the rate rises as set in your loan contract, and you would still need valid building cover.

Choose the cheaper policy only if it gives equivalent cover. Compare its price with the interest discount you would lose if you cannot show the bank the new cover.

Timeline and deadlines

• Give written notice that you will not renew the bank's policy: at least 1 month before the annual renewal date

• Send the bank proof of the new cover so you keep your interest discount: when the new policy starts

• Ask for the refund of the premium paid for the unexpired period if the policy ends early: when the old policy ends

Documents you need

• A home insurance policy covering the building against fire, explosion, lightning, water damage, storm and similar damage, with a sum insured at least equal to the rebuilding value, not the land value or market price. It is issued by your insurer, either the bank's or an equivalent one you choose.

• Proof that the bank is named as beneficiary, or that claims are assigned to it, up to the outstanding loan. Your insurer issues it with the policy.

• Proof of renewal and of premium payment, which you give the bank at each renewal for as long as the loan lasts. If you switch insurer, this proof of the new equivalent cover is also what keeps your interest discount.

Frequently asked questions

Does my bank have to pay attention to the insurer I choose?

Yes, you can freely choose your insurer, and the bank must accept an equivalent policy from another company. It cannot charge you for reviewing that policy or worsen your loan terms because you did not buy its own.

Do I need contents, theft or liability cover for the mortgage?

No, contents, theft and liability cover are not normally mandatory for a mortgage. Banks usually ask only for building cover against fire, explosion, water damage, storm and similar damage, but each lender sets its own list, so check your loan deed.

Will I get money back if I replace the bank's policy?

Yes, the premium paid for the unexpired period is refunded if the policy ends early, for example when you replace it. Your policy conditions and loan contract set the details of the refund.