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Home insurance during exchange of contracts – what you need to know

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You could be forgiven for having lapses in concentration when in the midst of the complex, stressful and generally laborious process of home-buying, as there’s so much to do and so much to remember. And then there’s the innate timing of everything. And the waiting. And waiting. And waiting. You really need the patience of a saint when you’re buying your first home or moving to another one, as the strain will soon begin to show otherwise.

Solicitors, banks, mortgage lenders, surveyors, conveyancers and any integral buyer/seller chains are all key to smooth runnings, yet the fact that pretty much everything in terms of controlling the situation is wrestled away from you during this transient period can be very frustrating. And preying on your mind is the fact that until such time as contracts are exchanged then neither side has any legal obligation to buy or sell the property, meaning that you feel that you’re in something of limbo; a no-man’s land whereby the plug could, hypothetically be pulled at any given moment.

Which is a shame really as, more than anything else, this should be one of the most exciting times in your life, as it represents a new beginning or a fresh start where boundless possibilities open up before you and you envisage just what it will be like living in your new home.

With your mind quickly turning towards where your existing furniture will best fit into this new layout and what interior design marks you wish to make on your new property, you dream of stamping your unique identity on the place the moment you receive the keys to the front door and close it for the very first time. But hang on one minute. Before you get too carried away, there’s the small matter of home insurance to think about. Who’s responsibility is it? What does this entail? Who should I speak to about it? Questions, questions, questions, yet all relevant and hugely important here and now. So here’s what you need to know…

Homebuyer’s responsibility to arrange buildings insurance policy to cover period between exchange and completion

The buck stops with you when it comes to insuring the property in this intervening period between exchanging and completion. You, in your capacity as the homebuyer are solely responsible for ensuring that the house is covered by a dedicated buildings insurance policy for any eventualities during this often undefined passage of time.

However you should also make sure that the necessary contracts clearly state which party is arranging the cover so everyone’s singing from the same hymn sheet. To clarify matters – and leave you in no doubt as to your responsibility – your solicitor will probably instruct you to sort out the insurance as soon as the contracts are exchanged, while some solicitors/conveyancers have been known to refuse contract exchanges until the buying party has provided evidence to support the claim that they’ve sorted the buildings insurance policy to set in motion between exchange and completion.

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Home insurance might not be required by law, but it is definitely a good thing to have. In fact, many mortgage lenders ask that you have buildings insurance at the very least.

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But don’t just take their word for it, as standard conveyancing wording (as recommended by the Law Society) refers to the ‘Standard Conditions of Sale (5th Edition)’, which makes no bones about the responsibility resting firmly on the shoulders of the homebuyer when it comes to arranging the appropriate cover.

Don’t be fooled by the seller/vendor’s home insurance policy either, which implies that it will cover the buyer automatically until the contracts are completed, as this is a red herring. Provided under a third party’s insurance policy more often than not it won’t be sufficient to satisfy your solicitor’s demands, as it’s likely that they’ll also represent the interests of the mortgagee or building society/bank. In this instance they stipulate that an insurance policy is in the buyer’s name and under their control, so as to minimise the potential for any unforeseen problems arising somewhere down the line.

Put it this way, only by rubber stamping your own buildings insurance policy will you be best placed to determine that the proposal made to your insurer has been ratified after taking into account full and adequate provision of cover and disclosure of all relevant information beforehand.

Most solicitors/conveyancers won’t proceed until prospective homebuyer provides buildings insurance policy confirmation for intervening period between exchange and completion

Home insurance experts offer sound advice which should be heeded to, suggesting that if the purchaser is required to insure the property courtesy of a buildings policy then it’s imperative to have that specific cover in place immediately after the exchange and through to the official completion, irrespective of whether or not the seller’s insurance plan purports to cover the buyer in these circumstances.

There might well be a time and a place where the generally accepted obligation of insurance from a buyer’s viewpoint is seemingly not required by the other parties involved, however we would still advise homebuyers not to rely on the seller’s policy in its entirety, so as to be on the safe side. And that’s because you can’t guarantee that – for their part -they haven’t been disingenuous in their original accounts given to their building insurance provider at a previous time. There could be a list of nagging questions which eat away inside and which will remain unanswered which could easily compromise the transaction. In as much as it leaves you as a buyer liable to future issues.

For example posers such as, ‘has the seller insured the property for the correct amount should it need rebuilding after sustaining irreparable damage?’, ‘have they been honest and accurate with all the details for the property as cited on their existing insurance proposal (e.g. the disclosure of up-to-date information about claims histories, convictions and financial histories re: all occupants)?’ and ‘are there any restrictions in their insurance policy which you might not have been aware of from the outset?’

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At the end of the day you’re deciding on putting your trust into a complete stranger, with the security of arguably the biggest investment you’re likely to ever make in your life at stake. Despite the best will in the world, if a mistake has been made at some point, the policy risks being voided as a direct result, translating that the property would therefore not be insured properly in the event of worst case scenarios taking place during this period. We’re of course referring to storm damage, fire, floods and various acts of God which could befall the bricks and mortar you so desire.

Double insurance is not a risk unless more than one claim is submitted for same event and liability

Having said this, therein lies what could be another problem, namely double insurance. Many people are led to believe that home insurance providers won’t even entertain the idea of arranging cover for the buyer if it overlaps with the seller’s current policy, with regards to term. This isn’t the case though, because as far as your insurance company is concerned you (in the guise of buyer) are recognised as a separate entity from the seller, and can be insured for the same risks on the one property during the interim without being culpable for intentional double insurance.

Dual insurance for conveyancing purposes is indeed the norm and is largely unavoidable, for the record. In reality there are no laws to stop double (or even quadruple) insurance, yet what cannot be made is more than one claim for the same event and liability. As a footnote to this – and something you should be well aware of – is the underlying fact that most home insurance policies incorporate features which state that the benefit payable under a policy to is routinely passed on to the buyer of the property in question should damage occur between exchange and completion, unless suitable alternative buildings insurance has been arranged by the buyer; in which case this condition is withdrawn automatically by an escape clause (effectively nullifying that benefit).

Moving on, and finally in terms of length of time normally endured between exchange and completion, and this could be answered by the same response people give when asked as to just how long a piece of string is? We’re typically talking anywhere between a few days, to a couple of weeks or a number of months, as it all hinges on any other buyers and sellers if you’re part of a chain reaction at this juncture which can often be the state of play.

So there you have it, and to summarise: it’s the prerogative of the homebuyer to ensure that their insurance policy commences immediately upon exchange of contracts, regardless of what insurance provisions the seller has on the property so as to safeguard their interests, and is your obligation under the Standard Conditions of Sale (5th Edition). The only exceptions to this normal rule of thumb is if a different, or amended, contract wording is being used. The best example of this is if you are purchasing a property from a house-builder, where a different contract will often be used.