Potential home buyers can sometimes be caught by surprise when learning how important obtaining insurance is during the home buying process. In New Zealand, it is important not to leave obtaining or arranging insurance too late.
Before submitting an offer, we recommend you obtain a quote from an insurance provider or include a clause in your offer which makes obtaining insurance for the property a condition. Getting on top of arranging insurance early can be beneficial to ensuring your settlement goes accordingly to plan and especially as for some houses in New Zealand, insurance cover is not a guarantee. For some houses obtaining insurance has become increasingly more difficult due to the risk of natural events, prior claims and the age of the property if it is older. This is more prevalent in some areas more susceptible to flooding, especially with the severe weather New Zealand has been facing.
Obtaining insurance is also necessary if you plan to obtain a mortgage, as banks require that you have obtained full insurance before settlement and drawing down of your loan. The insurance policy must meet the bank’s standard requirements, which includes having a sufficient sum insured. If you cannot arrange insurance before settlement, the banks may refuse to provide lending, and this could consequently delay settlement causing greater penalties and additional costs to you.
For certain houses, insurance providers may require you to provide additional information regarding the property before they will grant cover. This can include information such as builder’s reports for older properties and homes with known or disclosed defects. If the home you are looking to purchase has prior earthquake commission or private insurance claims this could make acquiring insurance more difficult, especially if the repairs done were potentially not compliant, completed or recorded properly.
If you have a builder’s report completed for the property after obtaining confirmation of insurance and this raises a concern, such as Dux Quest plumbing or any other defects, you may have to advise your insurer of this information. Consequently, your insurer may reassess the property’s insurability, impose special conditions, increase premiums or even in some cases decline cover until work is done to amend these issues. Therefore, if any concerns are raised within the builder’s report, you need to obtain insurance confirmation based on this information before proceeding with the purchase otherwise as above this could cause issues for drawdown of lending.
For apartments or complexes which are part of a body corporate, buyers should be especially cautious in reviewing the insurance agreements. It is important to confirm that the insurance is of a sufficient level and value to rebuild all the units if necessary. Buyers here should also be aware and consider whether the body corporate is putting aside enough levies to fund the insurance premiums and be prepared for any increases as well.
