Common Insurance Hiccups

The resurgence of severe weather events impacting the insurability of residential properties has been challenging for the wider property and insurance industries.

This has become a hot topic in recent months following some insurance companies tightening the scope of cover they provide.

Therefore, it is imperative for purchasers to ensure that they can obtain insurance for a property before an offer is made on the property, or that they make their offer conditional on obtaining this confirmation.   This is especially relevant for properties which may be labelled with heightened or future flood risks.

Common Issues with insurance

• For cross-lease properties which share a vertical or horizontally adjacent wall, previously insurance companies would allow owners to insure their respective halves of the property individually, or some insurers would prefer to insure the entire property under one insurance policy. It is becoming more common now for insurance companies  to refuse to offer insurance at all. This means owners may need to look at alternative options such as forming residents associations or converting to unit title or fee simple to enable them to obtain insurance, which would be a costly and possibly unsustainable way forward.
• In cases where the local council has deemed the property to be within a flood plain, and therefore prone to flooding, insurers may be reluctant to provide extensive coverage for such properties. It is important to carefully consider your Land Information Memorandum (LIM) Report to confirm whether the property is affected.
• In the property purchase process we find that many policies often do not provide the extent of cover which purchasers require in order to secure mortgage lending.
• It is important to comprehensively read your insurance policy and ensure that it meets your lender’s requirements. Your specific insurance obligations will be found in your Loan Agreement with your bank. You will generally need to keep the building insured against loss or damage by fire or by natural disaster.
• It is important to get the “sum insured” (the maximum amount of money you will get from your insurer) correct.
• Lastly, the age of the property is a strong consideration of insurability given that older properties tend to have older electrical systems and wiring which insurers may consider increases the insurer’s risk.

In conclusion, it is extremely important that you ensure that you can obtain insurance for a property before entering into an unconditional agreement for sale and purchase.  This means either obtaining confirmation before signing an agreement, or making your offer conditional on obtaining insurance.  You have a binding contract as soon as the vendor accepts the purchaser’s offer, so if you haven’t protected yourself by adding a condition or arranging insurance prior, there is no second chance to do so.

It is always important for purchasers to seek legal advice from a legal professional before entering into an agreement for sale and purchase.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Claire Tyler and Raiyan Azmi