Book an appointment
Book an appointment

Who pays the insurance between sale and settlement?

21.10.20 | Marc Barlow | Blog

Whenever a property purchase is agreed – whether at an auction or a private sale – a contract of sale is signed by both the vendor and buyer. Part of the contract is a period of time before settlement takes place.


Settlement 101

Settlement is the official date when the property’s title is changed, the vendor gets their money and the new owners get the keys … and the mortgage. Settlement periods can vary greatly, and are usually set by the vendor (although negotiations can take place). A typical settlement is 60 or 90 days.

This period of time gives the owner time to move out and gives the buyer time to sort out their loan and appoint a conveyancer.


What if something happens to the property?

The longer the settlement, the greater the chance that the property is damaged in some way. The chances are slim, but damage caused by weather, fire, window breakage and even holes in the plaster caused by a clumsy removalist are all possible. If the house is vacant, it’s at even more risk of accidental (or deliberate) damage.

So who is responsible for insuring the house during settlement?

While rules are slightly different from state to state, it’s clear that until the title changes hands on settlement day, the property remains in the vendor’s possession. It’s still their place.

As such, property insurance is the vendor’s responsibility. But what if they move out and cancel their policy, or don’t have insurance at all? Come settlement day the buyer might get the keys and discover that something serious has gone wrong. They are then left with both a mess to clean up and a potential legal nightmare as they try to get the previous owner to foot the bill for repairs.


Advice for buyers and sellers

For vendors: It’s your legal responsibility to hand over the property in the same condition it was in at the time the contract was signed. Buyers are permitted to conduct a pre-settlement inspection in the days prior to settlement, and if the property is in a poorer condition, they can actually refuse to settle and pull out of the transaction. Avoid any headaches and keep your property insured up until settlement.

For buyers: The pre-settlement inspection is in many ways a kind of insurance policy. If there is damage, you can simply refuse to settle. But what then? By that stage you’ve probably put most of your possessions in moving boxes and either terminated your lease or sold your own place.

You can always ask up-front before signing the contract whether the vendor has insurance and intends to retain it, but there’s no way to check or enforce any commitment they make.

So while it may seem like a waste of money, buyers should consider taking out their own insurance policy on the property after signing the contract. Compared to the scale of any unlikely disaster, it might be money well spent.


Contact us

For more advice on the pros and cons of backup insurance when purchasing a new property, get free and independent guidance from one of our experts at Mortgage Broker Group.