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Property Insurance: Key Facts Between Exchange and Settlement

A man and a woman reviewing property insurance documents at a desk.

Buying a property isn’t always a straightforward process, and one area that can cause confusion is the question of who is responsible for insuring it between the signing of the contract and settlement.

There are differences in regulations between states, but the basics are as follows.

  • First, it’s important to clarify whether the property is at the buyer’s risk or the vendor’s.

  • Generally speaking, the property only passes to the purchaser on settlement, and the vendor is responsible for passing the property to the purchaser in the same condition it was in at the time of contract exchange. If the purchaser takes early possession of the property, they take on the risk for the property from the day they take possession.

  • As the purchaser, it’s important to seek legal advice on whether to get the property insured before settlement. This may be required in case substantial damage occurs to the property during the period before settlement.

General tips

When it comes to property insurance, there can be some grey areas, but it’s important to understand your general obligations. Additionally, if both parties are insured throughout the entire process, it saves the headache should anything go wrong.

As the vendor, if there’s substantial damage to the property but the purchaser still wants to go ahead with the sale, you may need to consider a negotiation on price, or you may need to fix the damage before settlement. If you’re still insured, your insurance policy will cover the work needed.

For purchasers, if there’s substantial damage, you have the option to negotiate a price reduction or alternatively get out of the contract.

Importantly, it’s the vendor’s obligation to leave the property in the same condition it was in when contracts were signed, regardless of who holds risk over the property.

This is a complex area that can be hard to navigate without support, so it’s a good idea to talk to your mortgage broker to gain a clearer understanding of how best to proceed and protect yourself. For detailed advice about property insurance in your State, contact an experienced property lawyer.

Want to learn more? Talk to our brokers today!


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