Do I need home insurance before settlement?

Home insurance covers the cost of repairing or replacing your house against the unexpected, but it’s important for other reasons as well. In fact, when you are purchasing a property, it may well be that your lender requires you to have it. If you’re in the property purchasing process, you may want to know – do I need home insurance before settlement, and when does damage to the property become my responsibility?

Do you need home insurance before settlement?

It is not a legal requirement to have insurance when buying a house, but you may want to purchase it for your peace of mind, or at your lender’s request. Your lawyer or conveyancer may recommend that you take out insurance when you exchange signed copies of the contract with the seller. Even if the seller’s insurance covers the property until settlement, this might still be worth doing to protect your interests and in case the seller does not have adequate insurance in place.

If you have a home loan, it may also be a condition of your loan that you take out home insurance. For example, your lender may require you to take out building insurance that is effective from the date you sign the contract or before the loan becomes unconditional. Check with your home loan provider to see if this applies to you and from what point your home needs to be insured.

If you are buying a strata title apartment, you typically will not need to purchase building insurance as it will be covered by residential strata insurance. The cost of this cover is usually included in your building levies. However, you may still want to take out contents insurance to cover your belongings.

When do you become responsible for damage to a property?

The point at which a home buyer becomes responsible for damage to a property can vary depending on which state or territory you live in and your particular contract of sale. Each state has its own standard position as to when the risk of damage to the property normally passes from the seller to the buyer.

In most parts of the country, this will either be when the buyer and seller exchange signed contracts or at settlement. Settlement is when ownership of the property transfers from the seller to the buyer and the buyer pays the balance of the sale price. Here are the standard positions at which you will typically need to take out insurance around Australia:

• In the Australian Capital Territory, the buyer is responsible for damage to the property as soon as contracts are exchanged.
• In New South Wales, the buyer is responsible for damage to the property on settlement.
• In the Northern Territory, the buyer is responsible for damage to the property on either the date the whole purchase price is paid or the date the buyer is entitled to or is given possession of the property (whichever comes first).
• In Queensland, the buyer is responsible for damage to the property from 5pm the next business day after the contract date (this is before settlement).
• In South Australia, the buyer is responsible for damage to the property as soon as contracts are exchanged.
• In Tasmania, the buyer is responsible for damage to the property as soon contracts are exchanged.
• In Victoria, the buyer is responsible for damage to the property on settlement.
• In Western Australia, the buyer is responsible for damage to the property on either the date the whole purchase price is paid or the date the buyer is entitled to or is given possession of the property (whichever comes first).

Your contract of sale may be different to this and may pass the risk to you (the buyer) at a different time. It’s important to check your contract and speak to your solicitor or conveyancer to see what applies to you.

What does home insurance cover?

Home insurance covers your home if it is damaged or destroyed due to an ‘insured event’. Cover will vary between insurers, but it generally covers 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

In addition to this, insurers may offer benefits such as legal liability cover (covers your liability to pay compensation if someone is injured or their property is damaged at your home) and temporary accommodation (if your property becomes unlivable because of an insured event).

If you’re thinking about taking out home and/or contents insurance, you can compare a range of policies with Canstar.

What types of home insurance are there?

Generally speaking, when taking out home insurance, you may have the option of taking out either a ‘sum-insured’ or a ‘total replacement’ home insurance policy. Sum-insured cover is when you provide an estimate of how much it would cost to rebuild your home if it was totally destroyed, whereas total replacement cover insures you for the total cost of repairing or rebuilding your home to the same standard. According to Moneysmart, not many insurers in Australia offer total replacement cover and it is typically more expensive.

What is home and contents insurance?

The phrase ‘home and contents’ insurance refers to two different types of insurance that are commonly bundled up together. While home insurance covers the structure of your home, contents insurance can be taken out to cover your personal possessions, which can be anything from clothing or electronics to carpets in your home.

It is possible to purchase either home or contents insurance separately, but many insurance providers sell them together, and may offer a discount if you take out combined cover. While contents insurance is optional, taking it out may provide you with peace of mind that your belongings are covered in the event of loss or damage.

How are home insurance premiums calculated?

According to QBE Insurance, factors affecting your home insurance premiums can include:

• Your home itself, and factors including its age, construction materials and location
• The sum insured value, which will increase premiums the higher it is
• The value of your contents, if you also have contents insurance
• The people in your household, including their ages and claims history
• The excess you have nominated, which will increase premiums the lower it is
• Whether you have combined insurance or just home or contents insurance

Does the location of your home affect your home insurance policy?

The area in which your home is located can have an impact on the cost of your home insurance premiums. If you live in an area that is prone to natural disasters or flooding, or is known for high crime rates, insurance providers are likely to take this into account when calculating your premiums, making them more expensive.

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