Why do I have to get insurance for my property before it settles?


When you sign a contract to purchase a house or unit, one of the first things your solicitor will tell you to do is – take out insurance.

But what kind of insurance do you need? And why is it so important? It is easy to think – After all, I don’t own the property yet …

Well it is VERY important. This article will explain why.

When does risk pass under my contract?

The question, why do I need to take out insurance?? is answered by looking at the contract, and at your appetite for risk.

Under a standard contract, the usual position is that the property is at the risk of the buyer on the first business day after the contract date.

This means that if the property is damaged between the contract date and settlement, the buyer cannot pull out under the contract and must buy the damaged property, with no reduction in price. An exception to this is if the property is damaged to the point where it is fundamentally different to the original property, or is unfit for occupation (for example, due to fire or vandalism).

Also, it is important for a buyer to be insured for public liability in case against a tenant or occupant of the property is injured between the contract date and settlement.

Therefore, although the seller will usually still have an insurance policy in place until settlement, it is strongly advisable that the buyer also take out insurance so that they can make a claim in the event that something goes wrong.

What kind of insurance will I need?

We recommend that you speak to your insurance broker about this. If you are obtaining finance, your bank will require a minimum level of insurance to be taken out and can also advise what they would recommend.

However, as a general rule, if you are buying –

  1. A house or building – then you will need to take out building, contents and public liability
  2. A unit in a Community Title Scheme (where you share a common wall) – then you will need at least insurance cover for the contents of the unit (which will include things such as carpets, curtains and internal blinds) and public liability insurance for the interior of the lot. The body corporate is responsible for insuring the building for replacement value and public liability for the common property and any relevant body corporate assets. We recommend obtaining insurance information as part of your searches. Then it can be seen whether the insurance is adequate.
  3. House or Land in a Community Title Scheme (where you don’t share a common wall) – then you will need contents and public liability insurance. Initially, you should also obtain building insurance. The body corporate is responsible for public liability insurance for the common property and any relevant body corporate assets. The body corporate may also insure the building(s) with the agreement of all lot owners. If you take out building insurance, then that should cover you until you are able to discover by search whether the body corporate has common insurance for the building.

If you have any questions about risk or insurance, please feel free to contact our Property Team. They are happy to help with any property law and insurance questions you may have.

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