Is insurance always mandatory for financed assets?

Not always, but frequently. Most lenders require insurance when the financed asset is security, though exact requirements vary by product and lender.

What types of insurance do lenders ask for?

Common types include all-risks asset insurance, comprehensive motor fleet cover, buildings and contents, and business interruption where relevant.

What happens if I don’t provide insurance?

Lenders can delay drawdown, require immediate repayment, repossess assets, or place their own insurance and charge you. Always check terms and supply proof of cover.

Is insurance required for financed assets?

Short answer — and what this page covers

Yes — in many cases lenders require insurance on assets used to secure finance, but requirements vary by finance type and provider.

This article explains when insurance is typically mandatory, the common policy types, how lenders enforce cover, practical steps for businesses, and what to do if you need help arranging finance with the right insurance.

When insurers and lenders expect cover

Quick, direct answer

If an asset is financed or used as security, the lender will often insist on adequate insurance to protect its interest.

This is especially common for asset finance, hire purchase, lease agreements, vehicle finance and any secured lending where the asset can be repossessed.

Why lenders require insurance

Lenders require insurance because damaged, destroyed or stolen assets reduce the collateral value and increase their credit risk.

Insurance helps ensure the asset can be repaired, replaced or paid out so the lender’s exposure is managed for the duration of the finance.

Which businesses should expect cover to be required?

Established SMEs in construction, transport, manufacturing and similar asset-rich sectors should expect to provide evidence of insurance.

If you are arranging equipment finance, fleet funding or hire purchase, be prepared to show policy documents before drawdown.

Types of insurance lenders commonly require

Asset/All-risks insurance

Asset or “all risks” insurance covers physical damage and loss to specific equipment, machinery or plant.

Lenders commonly ask for this because it directly protects the financed item and the lender’s security interest.

Motor fleet and commercial vehicle insurance

For vehicle finance, lenders usually insist on comprehensive motor insurance with finance company interest noted on the policy.

Policies must often provide full cover for accidental damage, theft and third-party liability.

Buildings and business interruption cover

Where a property or fixtures are part of the security, buildings and contents cover — plus business interruption — may be required.

This ensures trading losses and the asset’s value are addressed if a catastrophe occurs.

Loss payee / mortgagee clause

Lenders often require to be named as “loss payee” or have a mortgagee clause on the policy so any claim payout protects their interest.

This clause sets out how an insurer will settle claims when a finance provider has a legal charge over the asset.

For more detail on funding equipment specifically, see our guide on asset finance: asset finance.

How lenders check and enforce insurance

Condition precedents and drawdown

Most funders make insurance a condition precedent to drawdown, meaning you must supply proof of cover before funds are released.

This proof can be a policy schedule, insurer confirmation or broker letter naming the lender as loss payee.

Ongoing compliance checks

Lenders may require annual evidence of renewal or periodic certificates for the life of the finance.

Failure to supply renewals can trigger default clauses, additional charges, or the lender purchasing cover and charging the business.

Repossession, claims and payouts

If an insured asset is written off, the insurer pays the claim and the lender’s interest is paid first under the policy clause.

If there is an insurance shortfall, the borrower usually remains liable for any outstanding finance balance.

Consequences of non-compliance

Without adequate cover, lenders can suspend lending, demand immediate repayment, or take possession of assets.

They may also arrange insurance themselves — often a more costly “force-placed” policy that adds to your expenses.

Practical steps to arrange appropriate insurance

Step 1 — Read your finance agreement

Check the finance terms for insurance requirements such as level of cover, policy types and naming the lender.

If anything is unclear, ask the broker or lender for written clarification before you commit.

Step 2 — Talk to an insurance broker

A commercial insurance broker can match cover to both lender requirements and your business risk profile.

Using a broker helps avoid mistakes such as under-insuring or failing to list the lender correctly on the policy.

Step 3 — Compare costs and exclusions

Policies differ on excesses, exclusions, replacement terms and whether replacement is new-for-old or indemnity value.

Get at least two quotes, and check whether cover includes business interruption or hire-purchase-specific clauses if needed.

Where Best Business Loans helps

We don’t sell insurance or loans, but we connect businesses with lenders and brokers who understand both finance and insurer expectations.

Start a Quick Quote to get matched with providers who can advise on the right insurance for financed assets.

Cost, alternatives and final checklist with next steps

Typical cost outcomes

Insurance premiums depend on asset type, use, location, replacement value and claims history.

More specialised equipment and higher-risk uses (like construction plant) attract higher premiums.

Alternatives and mitigations

In some cases, lenders accept alternative protections such as capped depreciation schedules, security deposits or stronger loan-to-value ratios.

However these alternatives are less common than direct insurance and will depend on the lender’s risk appetite.

Checklist before you sign a finance deal

Confirm whether insurance is mandatory and when proof is needed.
Check policy type required and whether the lender must be named as loss payee.
Obtain quotes and secure a broker who knows asset finance needs.
Understand renewals, excesses and what happens if the asset is a total loss.
Keep copies of policy documents and send renewals to the lender promptly.

Next steps with Best Business Loans

If you need finance and want help matching with lenders who understand insurance conditions, submit a Quick Quote for an eligibility check.

Our service is free and independent — we introduce you to brokers and lenders who can advise on both finance and the cover you will need.

Key takeaways

Insurance is commonly required for financed assets, especially where the asset secures the loan.
Policies vary by asset type — all risks, motor fleet, buildings and business interruption are typical.
Lenders will normally be named on the policy or as loss payee and check cover before drawdown.
Non-compliance can lead to repossession, force-placed insurance or demand for repayment.
Use a broker and confirm requirements before you sign; start with a Quick Quote to be matched with suitable providers.

About Best Business Loans

Best Business Loans helps UK SMEs find the right finance by matching business needs to lenders and brokers via AI technology.

We do not provide loans or insurance ourselves; we introduce businesses to trusted providers who can meet lender and insurer requirements.

Author

Best Business Loans — experienced commercial finance introducer for UK SMEs.

For help or to discuss your finance and insurance needs, contact hello@bestbusinessloans.ai or submit a Quick Quote on our site.