Approval in principle (“AIP”) is simply an indication of how much a bank thinks you can borrow.  It is not a legal document and does not entitle you to receive a mortgage loan for the AIP amount.  That  stage is only reached when you receive a full final mortgage offer.  You cannot apply for this until you are able to tell the bank the specific property you intend to purchase.   As there can be considerable time lags, once you go sale agreed you should immediately contact your bank to convert your AIP to full final mortgage offer.

Can I sign the contract before I have final loan approval?

It is generally most inadvisable to commit to a legally binding contract without the formal final loan offer.

Do I need a mortgage protection policy?

If the property you are buying is to be your home, the Consumer Credit Act 1995 (with some exceptions) obliges you to take out mortgage protection cover.  If the property you are buying is for investment or holiday purposes mortgage protection cover may be optional.  This is a non-legal matter on which you should take independent advice.