Do you need home insurance before settlement?
Home insurance is not a legal requirement before settlement but, if you’re buying a property with a mortgage, you probably won’t be able to settle without it. This is because most banks and lenders require you to have home insurance before signing off on your home loan.
The exact point at which you’ll need to have insurance in place can vary depending on the state or territory you live in. Whatever the case may be, it’s vital to have insurance as a homeowner, to protect yourself against financial risk in case the property is damaged or destroyed.
Why do lenders require insurance before settlement?
When you take out a home loan, the home itself will act as security for the loan. This means your bank or lender will have the right to repossess and sell it if you can’t make your repayments.
If the property is damaged or destroyed, it will be worth less, increasing the risk to your bank or lender. To protect themselves against this risk, banks and lenders will require you to have home insurance in place.
How do you prove you have home insurance?
As a homebuyer, you will usually be required to show your lender a Certificate of Currency from an insurer, showing their name as an “interested party”, before they’ll sign off on your home loan. You will usually be able to contact your home insurance provider and request a certificate of currency be sent to you.
When do you become responsible for damage to a property?
The point at which a home buyer becomes responsible for damage to a property varies by state or territory and by the terms of the contract of sale.
In most cases, this occurs either when contracts are exchanged or at settlement.
To protect yourself, you may want to arrange insurance from the point when the risk transfers. At the time of writing, standard positions for risk transfer across Australia include:
- Australian Capital Territory, South Australia, Tasmania: From contract exchange.
- New South Wales, Victoria: From settlement.
- Northern Territory, Western Australia: From either full payment of the purchase price or when possession is given/entitled, whichever comes first.
- Queensland: From 5 pm the next business day after the contract date (this is before settlement).
Contracts of sale may attempt to change the date at which you take on risk for the property, so it’s important to check this detail with your conveyancer or lawyer to know exactly where you stand.
Is home insurance required for a strata title home?
If you are buying a strata title apartment, purchasing separate building insurance is usually unnecessary, as the property is covered under the residential strata insurance. The cost of this coverage is usually included in your building levies.
Remember that strata insurance won’t cover your belongings in your house. You’ll need to purchase a contents insurance policy if you need protection for your belongings.
Do you need to purchase contents insurance before settlement?
You don’t need contents insurance before settlement. It’s not legally or contractually required.
However, it’s important to understand that building insurance only covers the structure of your home. Once you move in, your personal belongings, like furniture, electronics, clothing, and jewellery, won’t be protected.
Contents insurance covers these items against loss, theft, or damage, so you’re not left paying to replace them yourself. While optional, contents insurance can give you peace of mind knowing your belongings are protected.
You can take out contents cover on its own, or combine it with home insurance. Many providers offer a discount for bundled policies.
How does home insurance work?
When you take out home insurance, you choose a level of cover that reflects how much it would cost to repair or rebuild your home if it’s damaged or destroyed. This amount is called your sum insured, and it represents the maximum your insurer will pay for a building claim.
Another option is total replacement cover, where the insurer pays the full cost to rebuild your home to its original standard, even if building costs have increased. According to Moneysmart, not many insurers in Australia offer total replacement cover, and it is typically more expensive.
When you buy a home insurance policy, you also choose an excess, which is the amount you agree to pay towards a claim. A higher excess usually lowers your premium, but increases your out-of-pocket cost if you claim.
What is covered by your home insurance policy?
Home insurance covers your home if it is damaged or destroyed due to an ‘insured event’. Coverage varies by insurer but generally includes events such as:
- Fire
- Theft
- Storm
- Earthquake
- Explosion
- Impact damage (such as from a car or a falling tree)
- Escape of water (such as from a burst pipe)
- Vandalism and riot
Most policies also include legal liability cover, which can protect you if someone is injured on your property. As coverage varies between providers, it’s worth checking the Product Disclosure Statement (PDS) closely to understand your policy terms.
Does the location of your home affect your home insurance policy?
Yes, the location of your home can influence your home insurance premiums. Homes in areas prone to natural disasters, flooding, or high crime rates may attract higher premiums, as insurers factor in the increased risk.
Other factors that can affect your premium include:
- The type, age and condition of your property
- Security features like alarms, deadlocks, or security cameras
- The amount you choose as your sum insured
- Your excess.
