When you buy a property in Australia, you will likely be required to have home insurance. This will protect against damages inflicted on your home or property.
By and large, building insurance is a requirement of most lenders. This is because they want to ensure that their investment is protected if something happens to your home.
Nonetheless, whether you need to take out home insurance before settlement usually depends on the laws and regulations of the state or territory in which you are purchasing the property.
If you are unsure whether you need home insurance before settlement, this read is for you!
What is the Property Settlement Period?
Once you begin your home loan journey, you'll enter into what is known as the settlement period.
To begin with, property settlement gives you legal and physical ownership of your new home. It's the final step after successfully making an offer, paying the deposit, exchanging the signed contract of sale and then progressing through the cooling-off period.
The settlement period begins when the contract of sale is signed and ends on settlement day, i.e., when the buyer gets ownership of the new property. Depending on your state or territory, it typically takes 4-12 weeks. The most common settlement period is 8 weeks. However, in NSW, settlement usually takes around 6 weeks.
During this time, home buyers finalise their paperwork, sign the bank contract and look into home insurance, pest and building inspections.
In addition, your conveyancer/solicitor will guide you on what to watch for and what to do if there's a problem. For example, if the house is not in the same condition as when it was sold or there's damage to the property.
Your conveyancer or lawyer will be able to guide you on the other requirements for property settlement in your state or territory.
If you're new to the home loan application process, our blog resources for First Home Buyers can help you understand the process and what you'll need to do before settlement.
Should You Take Out Home Insurance Before Settlement?
The laws and rules on whether a buyer is responsible for home insurance vary between states and territories. In some places, it may be a legal requirement to have home insurance before the settlement date. On the other hand, it might be okay to wait until the settlement date to purchase your home insurance policy.
Here's a general idea of when you'll be required to take out home insurance coverage when buying a new home in each state and territory:
New South Wales and Victoria
From the settlement date, the buyer becomes responsible for any damage to the property. Therefore, until this point, it is the seller's responsibility. Nonetheless, it’s advisable for buyers to take our insurance from when the seller signs the contract.
In fact, in New South Wales and Victoria, your lender will most likely recommend that you take out building insurance from the date the seller signs the contract. This will protect their and your interest in the property.
Queensland
After both parties sign the contract of sale, the buyer becomes responsible for the property from 5 pm the next business day. Therefore, as a buyer, you should have your home insurance policy in time to cover any potential damage.
Australian Capital Territory, South Australia and Tasmania
Typically, the buyer is responsible for any damage during the settlement period. If you’re a home buyer, you should have your insurance policy organised before exchanging contracts. If you do not, it may be your responsibility to pay for any risk or damage to the property, such as damage inflicted due to weather events like floods.
Western Australia and Northern Territory
The buyer assumes responsibility for damage to the property on whichever date comes first - the date of payment of the full purchase price or the date when the buyer is entitled to or is handed possession of the new property.
Budgeting various expenses when buying a house can be difficult, so make sure to factor in the cost of home insurance. In addition, our range of free online calculators can help you determine how much your repayments might be.
If You're Buying a Strata Title Home
A strata title home comprises an apartment, house or unit you own. However, you also share the ownership of common property such as lifts, gardens, utility lines, foyers, fences, and driveways on the property's land.
If you're purchasing a strata title apartment, the building structure insurance will be covered by residential strata insurance. The body corporate will take out a building and public liability insurance for the building, common area, and properties of the strata scheme. So, while you don't have to purchase strata insurance, the cost will usually be clubbed in your building levies.
However, in a strata-titled property, you're responsible for the insurance of your unit. This includes what falls within the four walls of your unit.
The owner’s corporation’s policy will generally not cover your personal belongings. Likewise, it will not cover additional structural improvements within your home, for example, the kitchen or bedroom renovation or the installation of new air-conditioning.
When arranging the contents insurance before your loan settlement, you could include these structural improvements in the amount insured for your personal contents.
Is Home Insurance Compulsory in Australia?
In Australia, it's not a legal requirement to take insurance when buying a house. Nonetheless, purchasing home insurance is generally a good idea for the following reasons:
- Protect Your Investment: When you exchange signed copies of the contract with the seller, your lawyer or conveyancer may advise you to take out insurance. However, even if the seller’s insurance covers the property until the settlement date, you should protect your investment as much as possible, especially if the seller does not have sufficient insurance.
- Meet Lender Requirements: Your bank or lender may offer you conditional approval. In such a scenario, taking home loan insurance effective from the contract signing date can help you get unconditional approval sooner.
- At the outset, ask your credit provider if you need to take out a new policy and at what stage you need to arrange it.
Firstly, when taking out your insurance policy, your property's location will influence your year's premium. So, for example, if you’re moving to an area prone to floods, bushfires, or storms, your premiums will likely be more costly than in a low-risk area.
The location of your new home may also decide whether you can apply for optional home insurance coverage before settlement.
What Your Home Insurance Policy Should Cover
Buying home insurance should be like an investment. It requires some homework to ensure you get the best policy that covers the critical aspects of your home.
Before purchasing home insurance, organise a list of all the items you want to be included in your home insurance policy. This will help you categorise which items make sense to repair or replace.
According to Moneysmart, home insurance covers the building itself and the fixtures, such as the plumbing and built-in cabinetry. You could also include paths, garden edges, paving, clotheslines, masts, aerials and outbuildings such as carports and garages.
Home insurance is also typically taken on the cost of hard courts, jetties, solar panels and similar property items before settlement. In fact, your policy could also cover legal costs if someone gets injured on your property.
Home and Contents Insurance
The contents of your home may collectively be your second most significant asset. Accordingly, and rightly, you may want to protect them from loss or damage before settlement.
Taking home and contents insurance, covering your household items such as carpets, home electrical appliances, internal blinds, window coverings, curtains, potted plants and other personal belongings, is a good idea.
You can combine contents insurance with your home insurance. This is usually more affordable than having individual policies.
Let Joust Smooth Your Home Ownership Journey
Finding the right cover is just one variable when buying a property. At Joust, we want to make your home ownership journey as smooth as possible.
Our Live Auction tool gives you the confidence to select the most suitable loan for your financial situation from a range of lenders. The auction process is conducted on a secure and user-friendly platform, and you are under no obligation to accept any bid.
So visit our website, get started with Joust today, and enjoy a more innovative way to shop for your home loan!
Note: The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
