The insurance a private lender wants on your security property: building cover at replacement value, the lender noted, and a certificate before settlement.
Property Lending Hub
Private Loan Insurance · Security Property · Settlement
Picture it: the private loan is approved, settlement is set for Friday, and on Thursday the lender's solicitor asks for a certificate of currency with the lender noted on it. The policy is in a former business name, insured for what the property would sell for, and nobody has called the insurer. Here is what a private lender actually wants on the property, and how to have it ready before it holds up the money.
Quick Answer
A private lender will usually want building insurance on the property you offer as security, at full replacement value, with the lender noted on the policy, and a certificate of currency before it settles. It is not usually asking for lenders mortgage insurance or loan protection cover. See how private lending works for business owners, or start with our guide to private mortgage lenders.
Also called: lender noted on the policy, interested party, loss payee, mortgagee clause. Insurers and lenders use these terms loosely; each one means the lender's interest in the property is recorded on your insurance, though the exact rights behind each wording vary by policy.
What insurance does a private lender require on the security property?
A private lender requires building insurance on the security property, for its full replacement value, in force from settlement and for the life of the loan. The reasoning is simple: the property is the lender's security. If it burns down or floods and there is no cover, the lender is left holding a mortgage over a damaged site, and a private lender has no bank balance sheet to absorb that.
Most lenders ask for three things. First, cover over the buildings, not just contents. Second, a sum insured set at replacement value, not market value: what it would cost to demolish, clear and rebuild, which can sit well above or below what the property would sell for. Third, proof, in the form of a certificate of currency from the insurer showing the policy, the property address, the sum insured, the period of cover and the lender's interest. Expect to provide a certificate before settlement, typically as a condition in the loan offer, and the lender's solicitor will usually check it before funds move.
Moneysmart's home insurance guidance explains the difference between sum insured and total replacement cover, and why underinsurance is common (read 13 November 2026). The same logic applies when the property is a first mortgage security for a business loan: the lender cares about whether the cover would actually rebuild the asset its valuation relied on.
Where this commonly lands: the borrower has insurance, but it is in an old entity name, the address is the business premises rather than the security property, or the sum insured has not moved in years. None of these is a deal breaker. All of them cost a day or two at settlement if nobody checks early.
What does having the lender noted on the policy mean?
Having the lender noted on the policy means the insurer has recorded the lender as having a financial interest in the property, so the lender is told about changes to the policy and has a say in how a claim is paid. Insurers call this an interested party; older policies and loan documents talk about a loss payee or a mortgagee clause. The wording differs between policies, so the lender's solicitor reads what is actually on the certificate.
Lenders want to be noted on the policy for two reasons. One is notice: if the premium goes unpaid and the policy is about to be cancelled, the lender wants to hear about it before the property sits uninsured. The other is the money: if the building is destroyed, the lender wants the claim proceeds to reduce or secure its loan rather than land in an account it cannot see.
Getting it done is usually a phone call or an online form with your insurer, giving the lender's full legal name and the type of interest. Ask for an updated certificate showing the change. If the private loan sits behind a bank as a second mortgage, both lenders may need to be noted, and your existing bank will usually already be there. The private lending how it works guide covers the other conditions that sit between accepting terms and settling.
What if the property is vacant or being renovated?
A vacant or renovating property can still secure a private loan, but standard building cover often does not protect it, so the lender will want evidence of cover that fits how the property is actually being used. Many ordinary policies limit or exclude cover once a property has been unoccupied for a set period, and many restrict cover during major building works. The exact period and conditions vary by insurer.
This is a common gap in private lending, because so many private loans are short term and tied to a property in transition: bought to renovate, empty while it is sold, or waiting for a development approval. The question the lender asks is whether the certificate in front of it would respond to a fire on a site nobody is living in. If the answer is unclear, expect a condition requiring vacant property cover, a builder's contract works policy for renovations, or both.
- Vacant property. Tell your insurer it is empty and ask whether the policy still responds. Specialist vacant cover exists, often with tighter conditions such as regular inspections.
- Renovation. The builder's contract works insurance may cover the works, but not always the existing structure. The lender may ask to see both.
- Vacant land. There may be no building to insure. Lenders then look harder at public liability and the land itself; our vacant and rural land loans guide explains how that security is treated.
If speed matters, sort this out at the same time as the valuation, not after. What lenders need to fund quickly, insurance included, is set out in what private lenders need to fund fast.
How does insurance work for strata and tenanted property?
For a strata property, the building is usually insured by the owners corporation, so the lender asks for the strata building policy's certificate of currency rather than a policy in your name. You cannot normally note your lender on the strata policy the way you would on your own, so lenders typically accept the strata certificate showing current cover and an adequate sum insured. Ask your strata manager early; certificates are routine but not always instant.
What the lender may also ask for on a strata unit is evidence that your own policy covers the lot owner's side: fixtures and improvements inside the unit that the strata policy may not, and landlord cover if it is let. The split between what strata covers and what the owner covers depends on the scheme and the state.
For tenanted property, landlord insurance is usually separate from building cover and covers things like loss of rent and tenant damage. A private lender is mainly interested in the building, but where the loan relies on rental income to service or exit, it may also ask for landlord cover. More on how lenders look at property security is on our property lending hub.
What insurance does a lender want on commercial or industrial security?
On commercial or industrial security, a lender wants business property insurance over the building at replacement value with the lender noted, and it will check whether the lease puts that obligation on the landlord or the tenant. Larger commercial sites are often insured under industrial special risks policies, which bundle property damage and business interruption. How those policies work, in detail, is a question for an insurance broker.
Commercial leases often require the tenant to insure the building or contribute to the premium. A lender lending on a tenanted warehouse wants to know who holds the policy, that the policy is in force, and that the lender's interest is recorded somewhere it can rely on. If the tenant insures, the lender may ask to see the lease clause and the tenant's certificate.
Two checks come up most. The first is natural hazard exclusions: flood, bushfire and cyclone cover can be excluded, limited or expensive in some locations, and a lender will ask whether the property is covered for the risks it actually faces. The second is the gap between the sum insured and the valuation. A commercial valuation and a rebuild estimate test different things, as what a commercial valuation actually tests explains. For the loan side of these deals, see commercial property loans.
Is this the same as lenders mortgage insurance or loan protection insurance?
Building insurance is not the same as lenders mortgage insurance or loan protection insurance, and a private lender is usually asking only for the first. People mix the three up because they all appear around a loan, but they protect different people against different things. Think of it as three insurances, one question: who is being protected, and against what?
| Insurance | What it protects | Who it protects | Does a private lender usually ask for it? |
|---|---|---|---|
| Building insurance | The physical structure against fire, storm and other insured events | You, and the lender if noted on the policy | Usually required, at replacement value, with the lender noted |
| Lenders mortgage insurance (LMI) | The lender against a shortfall if the loan defaults and the sale does not cover the debt | The lender only | Not usually; private lenders tend to manage risk through a lower loan to value ratio instead |
| Loan protection insurance | Repayments if you cannot work through illness, injury or, on some policies, job loss | You | Not usually; optional, and often aimed at consumer borrowers |
| Key person or business cover | The business if a critical person dies or cannot work | The business | Rarely required; occasionally raised on larger or single-person business loans, varies by lender |
LMI is a bank-side product tied to lending at a higher loan to value ratio. Private lenders generally do not use it; they set a lower loan to value ratio and price for the risk. Loan protection and key person cover are worth thinking about for your own reasons, but they are rarely conditions of a private loan. If the asset is a vehicle rather than property, the rules are different again: see insurance on a financed business vehicle.
Here is what the lender usually checks, property type by property type.
| Property type | Cover the lender looks for | Evidence usually asked for | Common snag |
|---|---|---|---|
| House | Building cover at replacement value | Certificate of currency with the lender noted | Sum insured not updated for rebuild costs |
| Strata unit | Strata building policy, plus owner's cover for the lot | Strata certificate of currency | Waiting on the strata manager |
| Vacant property | Cover that still responds while unoccupied | Certificate and confirmation of vacancy terms | Standard policy limits cover once empty |
| Under renovation | Existing structure plus contract works | Both certificates, sometimes the building contract | Works cover does not extend to the existing building |
| Tenanted residential | Building cover, sometimes landlord cover | Certificate of currency | Policy written as owner-occupied |
| Commercial | Business property cover at replacement value | Certificate, sometimes the lease insurance clause | Tenant holds the policy and the lender is not noted |
| Industrial | Property damage cover, often under a broader commercial policy | Certificate and the natural hazard terms | Flood or bushfire excluded or limited |
What happens if the insurance lapses or the property is damaged during the loan?
If the insurance lapses during the loan, it is usually a breach of the loan terms, and the lender can typically require you to reinstate it or arrange cover itself and add the cost to your loan. If the cover lapses, the lender can step in, though how far it can go varies by lender and depends on the agreement. The clause to read is the insurance covenant, covered in caveat loan agreement clauses.
Lapses usually happen for boring reasons: a renewal sent to an old email, a direct debit on a closed account, or a policy cancelled when a property was sold and the security property was on the same policy. Because the lender is noted, the insurer may tell the lender before you notice. That is uncomfortable, but fixable quickly if you act on it.
If the property is damaged, tell the insurer and the lender promptly. Where the lender is noted, the claim proceeds may be paid to the lender, or released for repairs under its supervision, depending on the policy and the loan terms. If the claim is slow to pay out, that has its own knock-on effects for the loan, explained in our insurance claim payout delay guide.
Damage can also affect the exit strategy. If the plan was to sell or refinance, a damaged property can push that back. Talk to your broker early about whether the term needs to stretch, rather than waiting until the loan is due.
A private lender lends against the property, so it wants that property insured properly: building cover at replacement value, the lender noted on the policy, and a current certificate before settlement. Vacant, renovating, strata and commercial property each add a wrinkle, and lenders mortgage insurance and loan protection are usually not part of the ask. Most insurance problems at settlement are about names, addresses and sums insured, not about whether cover exists.
Key takeaway: call your insurer the day you accept a private loan offer, update the sum insured, have the lender noted, and send the certificate to your broker before the lender asks.Frequently Asked Questions
Loan protection insurance is not usually mandatory for a private loan; private lenders typically require building insurance on the security property instead. Loan protection covers your repayments if you cannot work, which protects you rather than the lender's security. It can still be worth considering for your own reasons, and how private lending manages risk explains why lenders focus on the property.
Lenders mortgage insurance is not usually needed on a private loan, because private lenders generally manage their risk through a lower loan to value ratio and their pricing. LMI is mainly a bank-side product for higher-LVR lending. The loan to value ratio a private lender sets is the closer equivalent, and it varies by lender and property.
Building insurance on the security property is usually needed before a private loan settles, and the lender's solicitor will typically ask for a certificate of currency with the lender noted. Missing or out of date certificates are a common cause of settlement delays. Sorting it early is one of the things covered in what private lenders need to fund fast.
A certificate of currency for a loan is a document from your insurer confirming the policy is in force, usually showing the insured property, the sum insured, the period of cover and any interested party such as the lender. Lenders use it as proof of cover without reading the whole policy. It is a standard condition in the steps between accepting terms and settlement, set out in the private lending how it works guide.
A private lender can often take out insurance and charge you for it if your cover lapses, where the loan agreement allows it, and the cost is typically added to the loan. The right depends on the insurance clause in your agreement, so it varies by lender. Read the terms before signing and check them against our private mortgage lenders guide.
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