A couple with young children had an unconditional offer to purchase a property and had obtained finance from a bank.  Before the settlement date one partner unexpectedly became very unwell and had to stop working.  Suddenly the couple’s income was drastically reduced and they knew they were going to struggle to meet their mortgage repayments.  They did not have adequate income protection insurance and found themselves in a very difficult situation.  

Most finance confirmations specify that there must be “no material change in financial circumstances”.  In the event of material change the purchaser would be unable to settle and would lose the deposit paid to the vendor.  The vendor would also be able to sue the purchaser to make them carry out the contract or pay damages for what resulted.

When buying a house it is extremely important to ensure you have adequate insurance in place before your offer becomes unconditional. If you wait until after the offer becomes unconditional, you may find that you are unable to obtain the insurance you need at the right time.

There are a number of things you should consider when looking for insurance:

  • House insurance: you should ensure that the property you are purchasing can be insured from settlement.  If you are obtaining finance, your mortgagee’s details will need to be recorded on the insurance as an interested party.  House insurance is generally for a sum insured value, although sometimes can be for full replacement value with a certain floor area.  There are many factors to consider when calculating the sum insured for your property, so you should seek advice from a registered valuer, quantity surveyor, or builder, if you require assistance in calculating the sum insured value.
  • Life insurance: this provides for a sum to be paid out upon the death of the policy holder, or sometimes in the event that they become ill.
  • Income protection insurance: this provides for funds to be paid out if the policy holder becomes incapacitated and cannot work.

Prior to confirming your contract and as part of your investigations of the property, you should contact your insurance provider to discuss the various types of insurance available and what best suits your situation.  

Therese Greenlees
Registered Legal Executive