Is building insurance actually needed prior to settlement?

When making a property purchase you need to ensure that once you have signed the contract of sale (COS) that you have an adequate building insurance policy in place. Most contracts will specify that you as the purchaser are responsible for the property from the time of signing so this means it is up to you to have an insurance policy in place, but not only that most banks actually require a copy of the building insurance during the buying process prior to settlement occurring. Your broker will ask you to provide a copy of this early in the process as this will eliminate any delays that could potentially happen later in the process at time of settlement which could lead to delays of meeting settlement and therefore being penalised.

While it may seem that it is the sellers’ responsibility until time of settlement where you take over the ownership, this is not the case. If the building was to be destroyed by a fire prior to settlement it is on the purchaser to have adequate cover in place as the seller still expects the property sale to settle as per the signed contract.

A building insurance document will confirm to the bank otherwise known as “The Interested Party” that you have appropriate cover on the property you are purchasing. Interested parties will request a copy of the building insurance to confirm that should there be an event of a total loss for an item they have loaned the funds for, that the item is adequately covered during the event of this occurring. Once again your mortgage broker will outline this to you throughout the process.

It is important when organising building insurance that all the details are noted correctly with the insurer as the bank will not accept the document if it is missing some important information or has the incorrect information for what they need. Each lender has specific requirements so it is important to request the correct information the first time to save on any delays.

Below is a list of what the document will need to note at a minimum:

  • Name of the policy owner/purchaser
  • The address of the property to be insured
  • Who is the mortgagee/Interested Party
  • Sum Insured value (some lenders will request a specific amount that may differ from the purchase price noted in the contract)
  • Period of insurance (start date and finish date – usually 12 months)

Insurance is an important part of home ownership – commercial insurance bricklaying specialist Brickit notes that there are constant claims being made across Australia on policies, which can at times be into the hundreds of thousands of dollars for a single repair.

If you have any questions about obtaining an insurance policy or getting a quote, don’t hesitate to talk to your mortgage broker Gerry as we have a partnership with Allianz who can provide complimentary insurance from time of signing the contract right up to settlement for purchases. They can also provide other benefits and ongoing insurance policies. Alternatively if you already have an insurance policy in place and would like to compare what you are currently paying don’t hesitate to send us a message and we can arrange for them to call you and provide you with a competitive quote.