Building a new home is one of the biggest projects you’ll ever undertake. Whether it’s your new forever home or an investment property, there’s a lot at stake and you want to know you’ll have some protection should anything go wrong. Choosing the right insurance policy is something many people find overwhelming but with a basic understanding of what you can expect to be covered and what to look for, you’ll be able to begin navigating purchasing the ideal home and contents insurance policy for your home.
What is Home Insurance for New Builds
Home insurance covers loss and damage to the property that is the result of an insured event. Insured events are circumstances that are covered by your policy. For example, if someone broke into your home and stole your personal belongings, there’s a good chance this will be covered by your insurance. If you hurl a brick for your own window on purpose, this is much less likely to be considered an insured event.
It’s important to know exactly what is covered by your insurance as people have been caught off guard before. For example, if you’re home floods and your policy doesn’t cover flood damage, you’ll be left to pay for everything out of your own pocket.
Types of Insurance
Home building insurance: This covers the physical structure of your home against fire, storm, weather events or other covered events. This isn’t the same thing as a structural warranty, which is provided by your builder and covers defects and issues caused directly by their work.
Contents insurance: This covers what is in your house, protecting your personal possessions from theft and damage.
Home and contents insurance: These allow you to combine different types of insurance in a single policy. Most people who want one type of insurance tend to want the other as well.
Depending on where you live, home and contents insurance won’t necessarily be a legal requirement. Regardless of whether it’s actually required by law, most lawyers and conveyors will recommend you get insurance for your home.
When should I get home insurance on a new build?
So, it’s understood that there are many benefits to investing in a home and contents insurance policy for your new build. However, the next question you may be wondering is when is the right time to purchase home insurance. The actual question you need to ask is when exactly do you become responsible for your home and property? Knowing the answer to the latter question is the easiest way to answer the first.
The answer to this varies in each state. In our home state of Queensland, it’s generally understood the responsibility for damage to the property reverts to the homeowner beginning at 5 pm the next business day after the contract date (which is actually before settlement). Therefore, it’s important to have your insurance policy sorted before the settlement period so it’s ready to go when you move in.
Handover of Responsibility in other states.
In other states, the handover of responsibility for the property will vary from either the settlement period or the contract date.
- Australian capital territory: The buyer is responsible for damages when contracts are exchanged.
- Northern Territory: The buyer becomes responsible either on the date the whole purchase price is paid or when the buyer is given entitlement to the property (whichever comes first).
- New South Wales: Buyer becomes responsible on the settlement date.
- South Australia: The buyer is responsible as soon as contracts are exchanged.
- Western Australia: Buyers are responsible when the whole price is paid or on a specified date when they’re given full ownership of the home (whichever comes first).
- Victoria: The buyer is responsible for the settlement date.
- Tasmania: Buyer responsible from when contracts are exchanged.
Whatever the technical deadline for your insurance, a good rule of thumb is to have it organised sooner rather than later. Your insurance company and builder should both be able to advise you on when you need to have your insurance sorted by.
What is a settlement period?
A settlement date is when the ownership of the property and house transfers from the seller to you. In other words, it is when the buyer assumes responsibility for the property in a legally binding sense. This usually happens when the full purchase price is paid or is specified in the contract itself. A contract date is when all parties sign the contract and it becomes binding.
Do I need building insurance during construction?
Importance of Securing Insurance Coverage Early
It’s important to have insurance sorted as soon as possible when it comes to your new property and home. The buyer becomes responsible for damage sustained at some point between the contract date and settlement (check above to see when), so the sooner you organise your insurance, the better off you’ll be.
Another way to illustrate this point is to highlight the risks of not having your insurance before settlement. Should something happen while you’re not covered, it’s very unlikely the insurance company will cover anything retroactively, meaning you’ll have to cover damage to the property from your own pocket.
During Construction
Builders have a legal and contractual responsibility to insure their work throughout the construction period. Standard contracts for homes will include a domestic building insurance that your builder will organise on your behalf. If your builder doesn’t have insurance, or says you don’t need it, consider it a red flag.
How does purchasing home insurance before settlement impact the process?
Typically, you can get pre-loan approval without needing insurance. However, once you’ve purchased the property and are about to go ahead with the build, it’s often a requirement of mortgage lenders that you have insurance as a condition of the home loan.
To be clear, home insurance isn’t legally required to get a mortgage approval, however, most institutions likely to offer you a mortgage will make it part of the agreement that you have insurance. If they don’t, there might be something to compensate for this, such as higher interest rates.
Benefits of Purchasing Home Insurance Early
Protection Against Unforeseen Events
Life is unpredictable sometimes. Considering a house will last for decades, that’s a lot time for something to potentially go wrong. Insurance will cover you for damage to the property and loss. It’ll also provide liability protection for accidents and injuries which may happen on site.
Peace of Mind for Homeowners
Unless you’re pulling in Taylor Swift levels of income, the cost of a house will be a huge investment. Without insurance, you run the risk of losing everything should something go wrong. An insurance policy allows you to know your home is protected as soon as you gain ownership of the property.
Having your insurance before the settlement period means no delays when moving due to issues with insurance.
Steps to Take When Purchasing Home Insurance
- A. Researching Insurance Providers and Policies
- Compare Coverage Options and Premiums: There are plenty of insurance options out there, so it’s worth investigating at least three different policies and comparing them. Though it may seem like a lot of legwork.
- Understanding Policy Limits and Deductibles: It’s essential you understand your policy, what is covered and how much. If you’re not sure about anything in the insurance policy, ask!
- B. Consulting with Insurance Professionals
- Seeking Guidance from Insurance Agents or Brokers: There’s a lot going on in every policy and it’s easy to feel in over your head. Hiring an insurance agent, financial broker or advisor can help you navigate finding the best policy for your new home.
- Addressing Specific Concerns or Coverage Needs: Every house is a little different and you need to be sure your coverage addresses your specific needs. For example, do you live somewhere that is cyclone-prone? If yes, you need to be sure your policy covers this. You don’t want to have something happen only to discover your insurance won’t cover it!
Bonus Tip: Where you build can affect your insurance premiums!
The location of your build is one of the most influential factors when it comes to insurance prices. Building in areas that are prone to flooding, bushfires, natural disasters or cyclones is likely to increase your premium prices.
Key Considerations when choosing your home insurance for a new build
Assessing Your Coverage Needs
One of the best ways to help decide on the right home insurance policy for you is to understand what your coverage needs are. Having an ambiguous idea of what you want from your policy can lead to you purchasing insurance that doesn’t account for your particular objectives.
Reviewing Policy Terms and Conditions: This is where it may be worth hiring a solicitor or a third party to look over your policy. The whole point of insurance is that it will cover you when you need it, so you have to be sure your policy is right for your needs.
Understanding Exclusions and Limitations: Just as important as knowing what your policy covers is understanding what it doesn’t. If something were to happen during your build, finding out this specific situation wasn’t covered by your insurance would be salt in the wound.
Ensuring Adequate Coverage for Potential Risks: Every house is unique, so be sure your policy suits both your lifestyle and the location of your house.
Remember that prevention is the best cure
Sometimes things will go wrong and there’s not much you can do about it. However, small things like making sure your fire alarms are working, installing security systems and being prepared for flooding can help minimise the amount you’ll need to claim. When you need insurance, it’s often due to a stressful event like a break-in or a natural disaster, so anything you can do to help prevent or minimise damage to the property is worth it.
Home Insurance is a valuable purchase for any new home.
Home insurance cover is something you hope you’ll never need, but you’ll be glad you have it when you do. Though it’s not the most exciting aspect of building a new home, being proactive with your insurance planning and preparation will ensure complete coverage and peace of mind. Knowing exactly when you’ll obtain ownership of your home is crucial to purchasing insurance at the correct time. At Buildi, we can advise you on these issues along with many more along your building journey. Get in touch today for your free consultation.
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