Insurance Before Settlement Legally Required?

[JWR]

Hi guys,

I've just exchanged on a contract in QLD and the agent sent me this about insurance.

"For the insurance, it is a legal requirement in Queensland that the buyer obtains adequate insurance cover by close of business on the next working day from contract date. Not sure how you have managed to avoid it on previous contracts but would suggest that you get it to so that everything is in place according to contract conditions."

I've always bought insurance from settlement date and not upon exchange and was wondering if what the agent is saying is correct or not?

Notwithstanding the risks involved by not having insurance during the settlement period - will I void the contract if I don't have insurance?

Thanks,
James

 

[Terry_w]

Insurance is not legally required at all.

If you are mortgaging the property the lender may require the property to be insured to cover their interest.

You would also want to cover your interest in the property and insure it on exchange is a good idea. What if it burns down before settlement and the vendor doesn't have insurance? = you terminate the purchase. But if you had insurance you may get a nice new property instead.

 

[Aaron_C]

In Qld you are supposed to get insurance at exchange. This is normal.

 

[RPI]

In QLD risk passes to the buyer at 5pm the day after the contract is signed. Standard condition 8.1 of the contract.

It will not void the contract.

You should be able to call your QLD property law and ask that sort of thing without them charging you.

D

 

[JacM]

Regardless of which state the property is in, there is always the danger that the vendor does not have insurance. Imagine if this were so, and the house burned down. You'd be under contract to purchase a magnificent pile of charcoal rubble. Definitely best to take out insurance straight away and not wait till settlement.

 

[JWR]

Ok thanks guys just as I thought - agent scared me a little as she emailed me at 4:30pm stating I needed it before COB 5pm that day but had never heard that before and this is my 4th in QLD

Should've asked my conveyancer just didn't think of it!

 

[Perp]

I always ask my lawyer to insert a special condition that the risk remains with the seller until settlement. Sellers usually keep their insurance until settlement, anyway, so it simply avoids the unnecessary expense and complication of two insurance policies.

Further, I believe that if both seller and purchaser insure the same property, it can create a nightmare if there is actually a claim, as to whose insurer pays. That can be the insurers' problem if the coverage is similar, but I know of situations where - at the time of a flood - one policy (buyer's?) had flood coverage and the other policy didn't, and creates uncertainty and arguments about whether flood coverage is active or not. (Note to self: ensure that when sellers keep their insurance, my special condition ensures that it's adequate coverage!)

Does anybody know what the logic - if any - is that lies behind this standard condition?

 

[Dazz]

I always ask my lawyer to insert a special condition that the risk remains with the seller until settlement. Sellers usually keep their insurance until settlement, anyway, so it simply avoids the unnecessary expense and complication of two insurance policies.

Or simply get a ruler and delete the supposed "standard"....there's that ominous word again....clause 8.1

Beware the word 'standard', and any sentence that contains the word 'standard'. Many a sin has been committed under it's guise.

Ignore at your peril.

 

[Perp]

Or simply get a ruler and delete the supposed "standard".

I totally agree re standard clauses, but I'd rather specify explicitly what replacement clause I want, than just omit the standard clause, which would leave the contract silent on the issue.

 

[Risky Business]

I think I've written this before so I'll keep it shorter.

Signed QLD 'standard' (sorry Dazz) resi contract. Went personally to home insurer. Manager said I was stupid. Cover not required as seller will have it, but we'll take your money stupid. I politely said, you're the manager, it's your profession, but you're wrong. Old guy in customer line piped up, said he was in the insurance game for 35 years and said that the buyer needs insurance as has interest and liability.

Manager says that you learn something every day.

Whilst under contract, unsettled. Storm does 49k damage. My insurer paid.

I reckon the manager would have conveniently forgotten our conversation had I returned after not obtaining insurance.

Seller may have insurance. But assumption is the mother of all *ups.

 

[HD_ACE]

I think I've written this before so I'll keep it shorter.

Signed QLD 'standard' (sorry Dazz) resi contract. Went personally to home insurer. Manager said I was stupid. Cover not required as seller will have it, but we'll take your money stupid. I politely said, you're the manager, it's your profession, but you're wrong. Old guy in customer line piped up, said he was in the insurance game for 35 years and said that the buyer needs insurance as has interest and liability.

Manager says that you learn something every day.

Whilst under contract, unsettled. Storm does 49k damage. My insurer paid.

I reckon the manager would have conveniently forgotten our conversation had I returned after not obtaining insurance.

Seller may have insurance. But assumption is the mother of all *ups.

So who decided that your insurance had to cover it and not theirs?

Cheers

 

[wylie]

So who decided that your insurance had to cover it and not theirs?

Cheers

Who cares? As long as it is covered by one company...

I've always insured first business day after signing contract. It is a necessity in Queensland and made very clear that is must be done. I used to organise a cover note but it seems this is no longer something insurers will do and last few times I've taken out and paid for a full policy.

Why would anybody quibble about buying a policy. It only costs a little extra to cover the month from contract to settlement. Why risk trouble?

 

[Perp]

Whilst under contract, unsettled. Storm does 49k damage. My insurer paid.

I reckon the manager would have conveniently forgotten our conversation had I returned after not obtaining insurance.

Seller may have insurance. But assumption is the mother of all *ups.

Absolutely the manager wouldn't have a clue what you're talking about.

When our PPOR flooded (the first time), by coincidence, both of the neighbouring properties were pending settlement of unconditional contracts. It happens!

Who cares? As long as it is covered by one company... Why would anybody quibble about buying a policy. It only costs a little extra to cover the month from contract to settlement. Why risk trouble?

As per my previous, I think having two policies over one property is risking trouble. You run the risk of both of them pointing at the other and saying "their liability!" I think it's also legally dubious to have two policies, because you're insuring the same asset twice, i.e. you effectively have insurance for twice the property's value, which I don't believe is allowable.

I agree with keeping things simple, and not quibbling about pennies, but I don't feel that having two policies achieves that.

You can probably sort the issues out and have somebody pay eventually, but why invite trouble when you can so easily avoid it?

(Bearing in mind we've been fighting nearly 2 1/2 years over our claim when we only had one policy! We've won the war, but the battles continue and we're going to have lost close to 3 1/2 years of our lives, and 3 1/2 years of our kids living in their childhood home, by the time we're done with this claim.)

 

[NZGirl]

I'm glad you raised this JWR, as this is something I've been wondering about as well.

Sorry to add another aspect to this thread, but can I also ask - does the requirement to get insurance after signing contracts in Qld only cover established properties or does it also apply to new builds?

The reason I ask is that my conveyancer hasn't mentioned insurance to me at all (I'm currently in the process of purchasing a townhouse in a complex that is under construction, due for completion in about 4-6 weeks). In my case, it also doesn't help that no one can tell me what insurances I even need (ie just contents insurance, or whether I need to also take out some elements of building insurance in additional to what the body corporate organises)!

 

[HD_ACE]

Who cares? As long as it is covered by one company..

The one paying the excess and recieving the higher premium?

 

[wylie]

The one paying the excess and recieving the higher premium?

Unless you are buying with cash, your bank in Queensland will require proof that you have a policy on the house before issuing documents. (At least we have had to do this each time we have purchased.)

So once the contract goes unconditional, you will need to either have a cover note (which seems no longer to be available), or a full policy in place with documentary proof for the bank. So, if you insure the purchase from the first business day after signing the contract (I've always been told this is mandatory in Queensland) then you are only paying a premium for one month earlier than it must be insured anyway.

I know I'm perhaps naive, but I don't care who pays out on a claim if the house burns down between signing contract and settlement, as long as it is covered by some sort of insurance company. I figure that if two companies each hold a policy, they can slog it out between them. At least someone will be paying out, other than me.

If that means I pay the excess, that is fine. If the vendor pays the excess that is better. I don't see why the premium would be any higher than it would be if I took out insurance on the day of settlement though. I shop around for the best policy whenever I take out insurance.

 

[Peterw]

In QLD, we have the Property Law Act which I believe creates the situation when the Buyer has what is described as an insurable risk. I believe that at the time of entering into the Contract, the Seller does not have to have "adequate" insurance. Again I understand that if the property is damaged, so as to no longer be habitable, then the Buyer may terminate, however if it is still habitable, then the Buyer has to accept the property and settle. The recent case (or should I say cases) over the unit in Tennyson, allowed the Buyer to walk, even though the unit was to be completely repaired. I am not sure that changing the terms on the Contract will alter the position as set out in the Act, as I am not aware that has been tested in court. Perhaps a Qld Lawyer can assist here.

 

[RPI]

In QLD, we have the Property Law Act which I believe creates the situation when the Buyer has what is described as an insurable risk. I believe that at the time of entering into the Contract, the Seller does not have to have "adequate" insurance. Again I understand that if the property is damaged, so as to no longer be habitable, then the Buyer may terminate, however if it is still habitable, then the Buyer has to accept the property and settle. The recent case (or should I say cases) over the unit in Tennyson, allowed the Buyer to walk, even though the unit was to be completely repaired. I am not sure that changing the terms on the Contract will alter the position as set out in the Act, as I am not aware that has been tested in court. Perhaps a Qld Lawyer can assist here.

Peter, you are sport on in that there is a lot of facets of the Act that a contract will not be able to override, but in this case the Act specifically allows for the contract to vary the terms in relation to this.

Interestingly, where not varied, even if the risk is passed to the buyer, any insurance money payable to the vendor at signing (due to damage at the time of signing even if a claim was not lodged prior to signing) goes to the lender first (if required because damage reduced security) and then to the purchaser.

D

 

[Simon]

What's the story in NSW?

 

[ericproperty]

reading this post making me a bit worried. if I signed a contract on Friday and bought building insurance on following Tuesday (meaning the cover commences on Tuesday), will the lender give me any problem re settlement? ( for not having insurance from Friday to Monday)