Your insurance responsibility when buying a property
The home buying process involves a lot of very big and extremely important decisions. You will obviously spend numerous days or even months exercising your due diligence. This will entail carrying out a thorough investigation of the local property market. Moreover, you will also have to analyse and review the location. In addition, you will spend a significant amount of time attending open houses, liaising with your solicitor, and your financer. However, the big decisions do not end here. You also have to think about how best to protect your investment and your asset. In fact, protecting your asset is vital for your long-term financial security. With this in mind, what is your insurance responsibility when buying a property?
Firstly, there is a need to clarify when you will assume responsibility for any damage to the property you’re buying. Secondly, given the magnitude and significance of your investment, we will look at the insurance policies you will need to take out. Furthermore, we will examine other insurance policies that you may consider taking out for full coverage.
When are you responsible for damage to a property you are buying?
With any transaction there comes a time when the seller hands over the responsibility of the asset to the buyer. At the same time, the buyer assumes ownership and responsibility of the asset. Likewise, with a property sale at some point the buyer assumes responsibility for the property. In most instances, the contract of sale will clearly outline when the risk of damage to the property passes over to the buyer.
All contracts are different and no two contracts are ever the same. As such, ensure that your legal representative thoroughly scrutinises the contract. This is important so as to determine when you as the buyer assume ownership of damage to the property. There have been instances where a property is severely damaged shortly after a sale. This has led to costly legal battles between the vendor and the buyer due to a lack of documentation on who the responsible party is.
Do banks require insurance before approving a home loan?
One of the questions often asked by first time home buyers is whether banks, mortgage lenders and other lenders require insurance before approving a home loan. Well, most mortgage lenders, be it banks or other financial institutions demand that there is a building insurance policy. In most cases, the insurance policy has to be equal to the amount stated in the recommendation on the property valuation. The insurance policy often has to be organised prior to the loan being settled. Lenders have an active interest in the property you require the loan for. As such, lenders need to ensure that the asset is secured from any damage.
Additional insurance options
Lenders Mortgage Insurance (LMI)
LMI is primarily designed to cover the lender in the event that you default on the home loan. The cost and value of your Lenders Mortgage Insurance will be based on the type of home loan you get and the value of the mortgage.
One of the most neglected thoughts by many homebuyers is what would happen to the home loan in the event of their demise. Bear in that there is a distinct difference between Life Insurance and Lenders Mortgage Insurance. Lenders Mortgage Insurance helps you in the event that there was an unforeseen development that makes it difficult to meet your mortgage obligations. On the other hand, Life Insurance helps your loved ones maintain their lifestyle in the event of your passing.
Home Contents Insurance
In the first place, this type of insurance cover is not mandatory. However, it is essential to cover the personal belongings that you have in your home in the event that they are damaged or stolen. It is of the greatest importance to engage an insurance broker on insurance policies that are essential to cover your valuables.