When your offer has been accepted and the contracts have been exchanged, it is so tempting to finally relax. You deserve it – you’ve worked hard, searched and found the right house, negotiated a great price and feel kind of proud of yourself and exhausted at the same time.
Sorry, the celebration will have to wait, you still have one more crucial thing to do:
The house must be insured. But hang on, you say, I don’t even own it yet! Correct, you will own it after settlement but in the meanwhile you should still insure it and here is why. There is the issue of the risk of damage to the building and its fixtures. At any time after the exchange of contracts the house is either at the buyer’s risk or at the vendor’s. The best thing is to explicitly clarify that in the contract and set a date when the risk passes from the vendor to the buyer.
What you need to know about the risk of damage is the minute it passes to you, the buyer, you must already have insurance. To stay on the safe side, it is better to get the house insured even before. Consider a worst case scenario where the house burns down one day after you’ve exchanged contracts and the vendor doesn’t have insurance or his insurance is covering only part of the rebuilding costs.
If that happens, a buyer may still be forced to proceed with settlement, becoming a proud owner of a pile of burnt junk. At this point if he had the house insured, it wouldn’t be a tragedy – the house would have been rebuilt at the insurance company’s expense. All of this could have been even turned in his favor, because instead of an old house he would be getting a new one for the same money.
Getting insurance for your home is not an easy task, as there are many issues to consider such as what the policy should cover, how to choose the insurance company and more. One of my next posts will be discussing home insurance policies in more detail, stay tuned or better yet, subscribed.
Update: please note that different states have different insurance requirements. This article is referring to Victoria and QLD. In NSW, ACT and WA home owner is required to have insurance at settlement.