Fire and explosion insurance: a practical guide for mortgage borrowers

When taking out a mortgage to buy a home, the bank almost always requires you to purchase a fire and explosion insurance policy covering the property. This is a guarantee that protects both the borrower and the lender: if the property suffers serious damage, the insurance steps in to cover the cost of reconstruction or repair. Understanding what this policy provides, how to evaluate it and what room for choice you have helps avoid surprises at the time of signing.

Why the bank requires it

The property constitutes the mortgage's collateral: it is the asset on which the bank registers a lien. If that property were destroyed or seriously damaged — by a fire, a gas explosion or a short circuit — the collateral would be lost. Fire and explosion insurance therefore protects the value of the asset for the entire duration of the loan. As a rule, the bank is named as the policy's beneficiary up to the amount of the outstanding debt.

What it covers and what it excludes

The core of this policy concerns material damage to the property caused by fire, lightning, explosion and bursting. Conditions vary from insurer to insurer, but in general the coverage includes masonry structures, floors, roofs and fixed installations. Often excluded, unless specific extensions are added, are:

• damage caused by earthquake or flood (these require separate cover, sometimes referred to as 'catastrophe' guarantees).
• damage from wear and tear, progressive deterioration or lack of maintenance.
• the contents of the home (furniture, appliances, personal belongings), which fall under separate multi-risk home insurance policies.
• damage to third parties resulting from the event (covered by third-party liability insurance, another separate guarantee).

Before signing, it is worth reading the Pre-contractual Information Document (DIP) that every insurer is required to provide: it summarises the guarantees included, the main exclusions and the deductibles applied.

Bank policy or your own policy: you can choose

The bank may offer its own affiliated policy, but it cannot oblige the customer to purchase it. Current regulations grant the borrower the right to bring an equivalent policy taken out with an insurer of their choice, provided it meets the minimum requirements set by the lender. Comparing at least two or three quotes — taking into account not only the annual premium but also the conditions, deductibles and coverage limits — is almost always worthwhile.

How the insured value is calculated

The policy's coverage limit should reflect the property's reconstruction cost, not the purchase price or the market value. These three figures can differ considerably: a historic apartment in the centre of Todi, for example, may have a high market value but a reconstruction cost per square metre that differs from that of a recent building on the outskirts. If the insured value is underestimated, the so-called proportional rule applies: the compensation is reduced in proportion to the difference between the declared value and the actual value. To estimate the reconstruction cost correctly, it is advisable to rely on a qualified surveyor or an insurance appraiser.

Duration, renewals and what to do in the event of a claim

The policy normally has a one-year term with automatic renewal, and remains active for the entire life of the mortgage. At the end of the loan, or in the event of early repayment, it is worth checking whether the coverage can be adjusted or converted into a standard home insurance policy. In the event of a claim, the standard procedure involves immediately notifying the insurance company, keeping evidence of the damage (photographs, expert reports, repair estimates) and informing the bank within the timeframe set out in the contract.

If you are considering purchasing a property in the Todi area and its surroundings and would like a practical perspective on how to navigate mortgages, insurance policies and administrative procedures, our team is available for a no-obligation consultation: knowing the local area helps you make more informed choices.