You’ve Just Exchanged Contracts, When Should You Take Out Property Insurance?

Congratulations! You’ve exchanged contracts on your new property, bringing you one step closer to ownership. But before you celebrate, it’s crucial to consider property insurance.

Many buyers assume insurance only becomes necessary after settlement, but waiting until then could leave you exposed to significant risks. So, when should you arrange insurance, and what type of cover do you need?

Why You Need Insurance Before Settlement

Under ACT law and standard real estate contracts, the risk in the property generally passes to the purchaser upon exchange of contracts, unless explicitly stated otherwise in the contract. This means you assume financial responsibility for the property from the moment contracts are exchanged, even before taking legal ownership.

This means:

• If the property is damaged (e.g., by fire, storm, or vandalism) before settlement, you will, subject to any specific contractual provisions to the contrary, be required to complete the purchase at the agreed price and be responsible for all repair costs.
• Without insurance, you could face significant out-of-pocket costs to repair or rebuild.

You must carefully review your contract’s specific terms regarding risk transfer, as timing can vary. If you are obtaining mortgage finance, your lender will typically require evidence of adequate insurance coverage as a condition precedent to settlement. To minimize risk exposure, ensure continuous insurance coverage from the time risk passes to you under the contract.

What Type of Insurance Do You Need?

At a minimum, you should consider:

1. Building Insurance – Covers damage to the structure of the property.
2. Public Liability Insurance – Provides protection against third-party claims for personal injury or property damage occurring on the property between exchange and settlement.
3. Landlord Insurance (if applicable) – For investment properties, comprehensive coverage including tenant default, malicious damage, and loss of rent is required, in compliance with ACT residential tenancy regulations.

For strata-titled properties, while the owners’ corporation maintains building insurance under the Unit Titles (Management) Act 2011 (ACT), purchasers should obtain a certificate of currency for the building insurance and consider additional coverage including contents insurance and supplementary building insurance for fixtures and improvements not covered by the strata policy.

What Happens If You Don’t Insure the Property Early?

Failing to arrange insurance in time could leave you vulnerable to:

• Financial loss if the property is damaged before settlement.
• Breach of contract and potential default under your loan agreement if you fail to maintain required insurance coverage, which could result in the lender withdrawing funding or imposing penalties.
• Legal disputes if the seller claims you failed to meet contractual obligations.

If you have any questions about organising property insurance for your matter, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.