Insurance : the most common question
By Alan Heath : your trusted expert mortgage broker in Brisbane CBD
Why do I have to insure my house from the date of the contract – shouldn’t it be the date of settlement?
In Sydney recently, a car jumped the gutter, crashed through a fence and into the front of a suburban house. The impact demolishing the front room and dislodging the entire house from its stumps.
As reported by channel 9, this house had been recently purchased but not yet settled.
Potentially, this is the classic insurance nightmare – the new owner doesn’t want to insure the house because “it isn’t theirs”. The outgoing owner can’t be bothered anymore because they are selling it.
If neither party have the house insured – what a mess that is to sort out.
This is perhaps the best real life example I have ever seen of why the legal position is the way it is. Under Australian property law, when you purchase a house, the house is legally yours from the date of the contract.
- The contract is legally binding on the vendor when they accept the deposit.
- The contract is legally binding on the purchaser when all the various conditions have been fulfilled (eg your finance has been approved)
- The vendor is legally obliged to maintain the property in precisely the condition in which the purchaser inspected it
- The vendor is legally obliged to hand the keys over on the day of settlement
- The incoming bank is legally able to require that the property be in good condition – and can refuse to settle if it isn’t
Now let’s go back to the car crash;
- The house is clearly not in the condition in which it was inspected and hence the vendor is legally obliged to restore it
- The house however, legally already belongs to the purchaser
- The bank could at this point argue that the house is not in good condition and refuse to settle
So whose insurance company should pay?
Common practice says that BOTH the vendor and the purchaser should have it insured. That way it's then the insurance companies job to argue over who should pay (which in this case would include the car driver’s insurance company).
Now think about the following as the other possible situation;
- The purchaser refused to insure because he/she felt it wasn’t right
- The vendor refused because they were in arrears and can’t afford it
- The car was stolen and is uninsured
What price would you pay for peace of mind?? –the easy answer? – 1 month’s insurance premium!
My advice is to get the house insured immediately after the contract has been signed – and if not - definitely on the day you go unconditional.
It’s not often that insurance is exciting – but the above photo shows it can certainly get interesting!
As always, you can call or email me anytime... Alan Heath