Residential building insurance: important for the building loan


For most households in Germany, there is no way around debt financing through a bank loan when it comes to home ownership.

The building loan is cheap and tempting, especially in periods of low interest rates.

From a solid financing perspective, however, it is not enough to find cheap borrowing rates. The building loan includes a whole portfolio of different framework conditions that must be kept in mind.

This also includes the fact that building money is usually not available without home insurance.

Building insurance: A must for loan financiers

Building insurance: A must for loan financiers

Real estate today costs 200,000 USD in a new building or purchase – often more. It is rare for a household to be able to finance this sum from its assets.

Banks will only provide the building loan if the borrower in return undertakes to take protective measures for the building structure. This safety net usually consists of several elements.

When it comes to new building financing, banks usually require that they take out a shell insurance. If the borrower buys a property from the property developer or from the portfolio, it is usually about residential property insurance. What is the purpose of banks?

The property is a financing object and security at the same time. This is where the banks’ special interest in protection can be seen. It is about the loan amount invested (e.g. after construction progress) against various environmental risks such as:

  • Fire
  • Severe weather (storm and hail)
  • Tap water damage or
  • lightning strike

to protect. After all, a damaged property can no longer be used as part of the enforcement of the land charge.

Residential building insurance: tips for builders

Residential building insurance: tips for builders

Building insurance usually covers all measures that are necessary to restore the building structure after damage.

These include:

  • Demolition costs
  • Cleaning costs or
  • Decontamination measures.

Elementary damage in particular can become a real threat to property owners – but it is not automatically included in home insurance. Depending on the individual location of the property, it may be advisable to include protection against natural hazards in the contract.

So that the residential building insurance fully protects the insured, the tariff should also include a replacement for costs that arise from renting a replacement apartment or moving to a hotel room.

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