Should I take out house insurance before settlement?

Tuesday April 5, 2016

Should I insure the property I have just purchased or should I wait until settlement?

Once you sign a Contract of Sale to purchase a property, you should take out building replacement insurance to protect your interest.  If the property is strata titled, this insurance should have been put in place by the owner’s corporation prior to the sale of the property.

Contents and public liability insurance should be taken out at settlement.

If the property is damaged prior to settlement, section 35 of the Sale of Land Act 1962 (“the Act”) enables you to rely on any insurance policy held by the vendor.  However, even though the vendor is obliged to hand over the property to you in the same state and condition as at the day of sale and carries the risk of the property and chattels until settlement, the vendor is not obliged to take out insurance.  Even if the vendor does take out building replacement insurance, the vendor may act so as to nullify or compromise any insurance policy (e.g. non-payment of insurance premium or wilful damage to or destruction of the property).

In the event that the property or the house is destroyed, or is unfit for habitation, you would have a right to cancel the contract under Section 34 of the Act, exercisable within 14 days.  However, this right cannot be exercised if the vendor chooses to reinstate the property or where the property is only partially (even if significantly) damaged.

It is unwise to rely on the vendor having insurance in place.  It is far more prudent for you as purchaser to take out the relevant insurance from the outset, as soon as the Contract of Sale is signed and insure the property before settlement.  You will then have the greatest range of options available if the property is damaged or destroyed prior to the scheduled settlement date.  This is particularly relevant if you have plans to demolish the building and rebuild, and could take the unexpected windfall benefit of an insurance payout to contribute to construction.