Insurance Requirements for Home Loan Approval in New Zealand

Why do banks require insurance before settlement?

Banks and lenders want to be sure that the home they are helping you purchase is protected against major risks. Insurance gives them peace of mind that if something goes wrong — like a natural disaster or fire — the property is covered, and their investment is protected.

For you as the buyer, having insurance in place also protects your new home and gives you confidence heading into settlement day.

Letter of Intention vs Certificate of Insurance: What’s the difference?

During the approval process, your bank will usually ask for either:

• A Letter of Intention — this is a letter from your insurer confirming they are willing to provide cover for your property once it settles. It shows the bank that your home is insurable.

• A Certificate of Insurance — this is the formal document confirming that your property is insured and that the bank’s interest is noted on the policy. You will typically provide this once the insurance is active before settlement.

A quote alone is not enough — banks require written confirmation of actual or pending cover

What is ‘Sum Insured’ and why does it matter?

‘Sum Insured’ is the maximum amount your insurance policy will pay if your home is damaged or destroyed. It’s very important to set this amount correctly to ensure you have the right level of cover.

Many first home buyers mistakenly focus on the property’s market value — but what matters is the full cost to rebuild your home, including today’s construction costs. Underinsuring your home could leave you short in the event of a major claim.

To help estimate your rebuild cost, you can use the free Cordell Sum Insured Calculator. It’s a useful tool to give you a starting point, but we also recommend talking to your insurer to confirm the right Sum Insured for your property.

Am I locked into one insurer?

No — arranging a Letter of Intention or Certificate of Insurance does not lock you in with one insurer. It simply satisfies your bank’s requirement that your home can be insured before they release the loan funds.

Once this step is complete, you are free to compare options and choose the insurer and level of cover that best suit your needs and budget. Insurance policies can vary quite a bit in terms of premiums, excesses, and what they cover — so it pays to shop around.

If you’d like a fast and easy option, we can help you connect with Tower Insurance, who many of our clients choose for their initial cover. But you’re always welcome to explore other options — the choice is yours.

Tips for first home buyers

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• Start early: Don’t leave insurance to the last minute — aim to have it sorted at least 7 days before settlement.

• Check your Sum Insured: Make sure it reflects current rebuild costs, not just market value.

• Compare policies: Even with an initial Letter of Intention, take time to review your options.

• Talk to your adviser: If you’re unsure about the process or what your bank requires, just ask — we’re here to help.

Important disclaimer

This information is provided as a general guide to help you understand insurance requirements for home loan approval. Canterbury Home Loans is a financial advice provider but does not provide personalised insurance advice. For specific insurance advice, please speak with a qualified insurance professional.

Ready to arrange your insurance?

Getting your insurance in place is an important part of completing your home loan. By understanding what’s required — and arranging your cover early — you’ll avoid last-minute delays and be ready for a smooth settlement.

If you have any questions about this process, or would like help connecting with an insurer, we’re always happy to help — just get in touch and we’ll guide you through it